It has been about a month since the last earnings report for Oceaneering International (OII). Shares have lost about 3.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Oceaneering International due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Oceaneering’s Q4 Earnings & Revenues Surpass Estimates
Oceaneering reported fourth-quarter 2018 adjusted earnings of 7 cents per share, significantly beating the Zacks Consensus Estimate of a loss of 24 cents, thanks to the rise in profit levels from the Advanced Technologies segment. However, the impressive results were partially offset by seasonality and lower activity levels in its energy-related segments. The bottom line also compares favorably with the prior-year loss of 8 cents per share.
Total revenues of $495.1 million topped the Zacks Consensus Estimate of $488 million. The top line also increased from $484.2 million in the prior-year quarter. The upside can be primarily attributed to higher revenues from Remotely Operated Vehicles, Subsea Projects and Advanced Technologies.
Remotely Operated Vehicles (ROV): This segment’s revenues were around $96.7 million compared with $91.6 million in fourth-quarter 2017. The segment reported operating loss of $1.3 million against operating income of $1.1 million in the year-ago quarter. Seasonality associated with the global vessel market was primarily responsible for the downturn.
Subsea Products: The segment’s revenues declined to $129.5 million from the prior-year figure of $156.4 million. Operating loss was recorded at $3.8 million against operating income of $11.1 million generated in the fourth quarter of 2017. Notably, backlog at the end of the quarter was $332 million. The segment’s results were impacted by the Panama City manufacturing facility being offline for a few weeks, as it was affected by damages from the Hurricane Michael. Execution of lower margin work in the service and rental business also negatively impacted the segment’s results.
Subsea Projects: Revenues from this segment amounted to around $89.3 million compared with $73.4 million recorded in the year-ago quarter. The segment generated operating loss of $79.4 million, backsliding from operating income of $582K recorded a year ago. Seasonal slowdown in intervention, maintenance and repair (IMR), as well as survey activities led to the downside. Moreover, the renewables business unit suffered a hiatus in activities and contract awards in the reported quarter.
Asset Integrity: The segment’s revenues totaled $62.8 million, lower than the year-ago quarter’s recorded figure of $64.8 million. Operating income also declined to $1.3 million from $2.2 million in the prior-year quarter. The decline was caused by a seasonal decrease in activities.
Advanced Technologies: Revenues from this segment were recorded at around $116.7 million, much higher than $98 million in fourth-quarter 2017. As such, operating income rose to $15.4 million from $2.8 million in the year-ago quarter. The segment’s results were positively impacted by the fulfillment of entertainment business contracts as well as improved performance from automated guided vehicle offerings.
To sum up, the energy-related segments of Oceaneering were affected by seasonality and lower activity levels.
Capital expenditure in the fourth quarter, including acquisitions, was $25.7 million. Notably, capital expenditure amounted to $178 million in full-year 2018, much higher than $105 million in 2017.
As of Dec 31, 2018, Oceaneering had cash and cash equivalents of $784.6 million, and a long-term debt of around $786.6 million. The debt-to-capitalization ratio of the company was 35.7%.
The company expects to generate positive free cash flow in 2019 (around $10 million), supported by rise in activities across all the segments. For 2019, the company expects Subsea Products and Advanced Technologies segments to drive profit levels, while the Asset Integrity segment is likely to come up with flat year-over-year results due to competitive contract pricing.
The company expects EBITDA for 2019 in the range of $140-$180 million. Oceaneering stated that the midpoint of the EBITDA guidance reflects around 12% rise from 2018 levels. Higher overall activity and stabilized pricing are expected to drive year-over-year growth. First-quarter 2019 EBITDA is expected to be significantly lower than fourth-quarter 2018 level due to increase in unallocated expenses.
Oceaneering expects a modest improvement in government business activities. Organic capital expenditure is expected in the range of $105-$125 million for the year, including $40-$50 million of maintenance spending and $65-$75 million growth capital costs.
Oceaneering intends to place its Ocean Evolution vessel into service in the second quarter of 2019. The company anticipates fleet mix use of 64% drill support along with 36% vessel support through 2019. For full-year 2019, the company expects ROV fleet utilization in the mid 50% range. ROV EBITDA margins for 2019 are expected in the high 20% range.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -54.59% due to these changes.
Currently, Oceaneering International has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Oceaneering International has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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