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Oceaneering's (OII) Q4 Earnings & Revenues Surpass Estimates

Zacks Equity Research

Oceaneering International, Inc. OII recently 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.

Oceaneering International, Inc. Price, Consensus and EPS Surprise

Oceaneering International, Inc. Price, Consensus and EPS Surprise | Oceaneering International, Inc. Quote

Segmental Information

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

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.

Balance Sheet

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%.

Guidance

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.

Zacks Rank and Stocks to Consider

Oceaneering currently carries a Zacks Rank #3 (Hold). Investors interested in the energy sector can opt for some better-ranked stocks as given below:

San Antonio, TX-based NuStar Energy L.P. NS is a midstream energy company. For 2019, its bottom line, which has witnessed three upside revisions over the past 30 days, is expected to grow 64.2% year over year. The company currently holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Madrid, Spain-based Repsol, S.A. REPYY is an integrated energy company. Its bottom line for 2019 is expected to increase 13.7% year over year. The company delivered average positive earnings surprise of 9% in the trailing four quarters. The stock currently has a Zacks Rank #2.

Enbridge Inc ENB is a Calgary, Canada-based energy infrastructure provider. The company delivered average positive earnings surprise of 33.2% in the trailing four quarters. It currently has a Zacks Rank #2.

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