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Why Is Oceaneering International (OII) Down 13.2% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Oceaneering International (OII). Shares have lost about 13.2% 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 catalysts.

Oceaneering Delivers Improved Y/Y Results in Q1

Oceaneering reported first-quarter 2019 adjusted net loss of 24 cents per share, narrower than the Zacks Consensus Estimate of 45 cents and the year-ago loss of 41 cents. Stronger y/y contribution from ROV, Subsea Projects and Advanced Technologies segments led to the outperformance.

Total revenues of $493.8 million topped the Zacks Consensus Estimate of $466 million. The top line also increased from $416.4 million in the prior-year quarter.

Segmental Information

Remotely Operated Vehicles (ROV)This segment’s revenues were around $100.3 million compared with $85.6 million in first-quarter 2018. The segment’s operating income was $1.4 million against a loss of $2.4 million in the year-ago quarter. Higher y/y utilization levels and revenues per day aided the segment to swing to profit, reversing the losses recorded in fourth-quarter 2018 and the year-ago period. Notably, utilization levels rose to 53% in the quarter under review from 44% in the corresponding period of 2018.

Subsea Products: The segment’s revenues came in at $128.8 million, up from the prior-year figure of $126.7 million. However, the segment bore the brunt of low margins, resulting in an operating loss of $476,000 against income of $1.7 million generated in first-quarter 2018. However, the operating loss reduced 87.5% sequentially on the back of higher service levels and rental activities. Notably, backlog at the end of the quarter was $464 million, higher than the year-ago level of $240 million.

Subsea Projects: Revenues from this segment surged 58% to around $89.7 million from $56.8 million recorded in the year-ago quarter. As such, the segment generated an operating income of $2.9 million versus a loss of $2.4 million in first-quarter 2018. Favorable product mix and solid execution boosted the performance of the segment.

Asset Integrity: The segment’s revenues totaled $60.7 million, lower than the year-ago figure of $61.3 million. Hit by high costs, the segment incurred an operating loss of $713,000 million against the prior-year income of $1.6 million.

Advanced Technologies: Revenues from this segment were recorded at around $114.3 million, much higher than $85.3 million in first-quarter 2018. As such, operating income rose to $9.6 million from $1.6 million in the year-ago quarter. However, the segment’s profit levels fell 37.7% sequentially.

Capex & Financials

Capital expenditure in the first quarter, including acquisitions, was $36.5 million. The company recorded a negative free cash flow of $10.8 million. As of Mar 31, Oceaneering had cash and cash equivalents of $696 million, and a long-term debt of around $791 million. The debt-to-capitalization ratio of the company was 36.2%.

2019 EBITDA Guidance Raised

Backed by robust first-quarter results and rebounding oil prices after the downturn in the final months of 2018, the company expects activity levels and utilization rates to improve going forward. As such, it has revised its 2019 EBITDA guidance to $150-$180 million, reflecting $10 million increase from the lower end of the prior forecast.

Oceaneering anticipates sequential improvement in ROV, Subsea Projects and Advanced Technologies segments. However, it expects flat sequential results from Asset Integrity and Subsea Products units.  

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

Currently, Oceaneering International has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.

Outlook

Oceaneering International has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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