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Why Is Dril-Quip (DRQ) Down 3.3% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Dril-Quip (DRQ). Shares have lost about 3.3% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Dril-Quip due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Dril-Quip Reports Strong Q2 Results, Backlog Rises

Dril-Quip reported second-quarter 2019 adjusted earnings per share of 3 cents, beating the Zacks Consensus Estimate of a penny. The company reported a loss of 24 cents in the year-ago quarter.

The company registered total revenues of $104 million in the quarter compared with $95 million in the year-ago quarter. Also, the figure beat the Zacks Consensus Estimate of $97 million.

The strong results were supported by relative stabilization of commodity prices, customer inventory drawdowns related to increased activities. Moreover, the company’s realigned sales organization boosted the results.

Cost and Expenses

On the cost front, selling, general and administrative expenses marginally fell to around $23 million from the year-ago quarter. Similarly, Engineering and product development costs declined marginally year over year to $5.2 million. Total cost and expenses during the quarter totaled $101.7 million compared with $98.6 million in the year-ago quarter. The increase was primarily driven by impairment, restructuring and other charges.

Operating income of $2.1 million significantly improved from the loss of $3.8 million in the prior-year quarter.

Share Buyback

In the second-quarter, the company repurchased 22,073 shares under its program (created on Feb 26, 2019) at an average price of around $39.87 per share. This totaled to about $1 million in buybacks. 

Free Cash flow

Dril-Quip’s free cash flow in the April-to-June period was $8.7 million, higher than $3 million in the year-ago level.

Backlog

At the end of the second-quarter 2019, the company had $322 million in backlog, up from $304 million as of Mar 31, 2019.

Balance Sheet

As of Jun 30, 2019, cash balances rose to $423.1 million. Also, the balance sheet of the company is free from debt load, which indicates sound financial position. In fact, the company expects no headwinds to dent long-term growth plan.

Outlook

For the second half of 2019, the company expects revenue to be in the range of $100-$110 million every quarter.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 231.25% due to these changes.

VGM Scores

Currently, Dril-Quip has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Dril-Quip has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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