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Oceaneering (OII) Dips on Wider Q2 Loss, Subdued Outlook

Zacks Equity Research

Oceaneering International, Inc. OII shares dropped more than 19% on Thursday after the company reported weak second-quarter results and narrowed its EBITDA guidance.

The company reported adjusted loss per share of 32 cents. The Zacks Consensus Estimate was for a narrower loss of 25 cents, while in the year-ago period Oceaneering International lost 23 cents per share. The underperformance could be attributed to disappointing performance from the ‘Asset Integrity’ and the ‘Advanced Technologies’ units.

The company’s revenues of $495.8 million came below the Zacks Consensus Estimate of $526 million but improved 3.6% year over year on growing sales from the ‘Remotely Operated Vehicles’ and the ‘Subsea Products’ segments.

Meanwhile, a bright spot in the report was the company’s free cash flow, which turned positive through the first half of 2019. To be precise, Oceaneering International’s roughly $1.8 million in free cash flow during the first six months of the year rebounded from a negative $37.8 million in the comparable period of 2018. Notably, it looks more likely that the provider of offshore equipment and technology solutions to the energy industry would be able to achieve positive free cash flow this year.

Oceaneering International, Inc. Price, Consensus and EPS Surprise

 

Oceaneering International, Inc. Price, Consensus and EPS Surprise

Oceaneering International, Inc. price-consensus-eps-surprise-chart | Oceaneering International, Inc. Quote

Segmental Information

Remotely Operated Vehicles (ROV): This segment’s revenues were $120.4 million compared with $107.4 million in second-quarter 2018. The segment’s operating income was $8.7 million, up from $4.5 million in the year-ago quarter. Days on hire rose 13% year over year to 15,423 while vessel utilization increased to 62% in the quarter under review compared to 54% a year ago.  

Subsea Products: The segment’s revenues came in at $138.9 million, up from the prior-year figure of $121.7 million. Meanwhile, the segment’s operating income registered year-over-year growth of 223% to $7.4 million. The improvement could be attributed to considerably higher manufactured products sales and strong operating margin out of its service and rental offerings. Moreover, the segment backlog surged to $596 million as of Jun 30, 2019, compared to Oceaneering International’s year-ago backlog of $245 million.

Subsea Projects: Revenues from this segment edged down 3.8% to $75.1 million from $78 million recorded in the year-ago quarter on lower-than-expected call-out work. However, the unit generated an operating income of $87,000, turning around from a loss of $10.4 million in second-quarter 2018 due to favorable product mix, robust execution and stable pricing (in the international and U.S. Gulf of Mexico markets).

Asset Integrity: The segment’s revenues totaled $61.2 million, lower than the year-ago figure of $67.4 million. Hit by pressure on pipeline inspection services, the segment incurred an operating loss of $1.3 million against the prior-year income of $3.4 million.

Advanced Technologies: Revenues from this non-energy segment were recorded at $100.2 million, slightly lower than $104.1 million in second-quarter 2018 as Oceaneering International missed on a large U.S. Navy contract. Meanwhile, operating income fell to $7.2 million from $7.9 million in the year-ago quarter due to timing issues with the company’s commercial theme park business.

Capital Expenditure & Balance Sheet

Capital expenditure in the second quarter, including acquisitions, totaled $40.9 million. As of Jun 30, Oceaneering International had cash and cash equivalents of $710.1 million, and a long-term debt of around $795.6 million. The debt-to-capitalization ratio of the company was 36.9%.

EBITDA Guidance & Outlook

With ‘Subsea Project’ call-out work not materializing as per expectations, Oceaneering International narrowed its full-year EBITDA guidance. The company now sees 2019 adjusted EBITDA of $150-$170 million versus its earlier view of $150-$180 million. Notably, Oceaneering International generated adjusted EBITDA of $70.7 million for the six months ended Jun 30, 2019.

Looking ahead to third-quarter profitability, the company expects sequential improvement from its ‘Advanced Technologies’ unit but lower contribution from the ROV and the ‘Subsea Products’ segments. The other businesses are likely to generate flat results.

Zacks Rank & Stock Picks

Oceaneering International currently carries a Zacks Rank #2 (Buy).

Apart from Oceaneering International, investors interested in the energy space could look at some other options like Canadian Natural Resources Limited CNQ, Helix Energy Solutions Group, Inc. HLX and Cheniere Energy, Inc. LNG that also carry a Zacks Rank of 2.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Over 30 days, the Calgary-based Canadian Natural Resources has seen the Zacks Consensus Estimate for 2019 and 2020 increase 5.4% and 6.6%, to $2.35 and $2.09 per share, respectively.

The 2019 Zacks Consensus Estimate for Houston, TX-based Helix Energy Solutions Group is 30 cents, representing some 57.9% earnings per share growth over 2018. Next year’s average forecast is 39 cents pointing to another 27.8% growth.

Cheniere Energy’s expected EPS growth rate for three to five years currently stands at 31.1%, comparing favorably with the industry’s growth rate of 14.7%.

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