Oceaneering International (OII 1.44%) reported first-quarter results after the market closed on Wednesday. The company's earnings were better than expected this quarter. However, that's mainly due to an acceleration in forecasted work as well as cost reductions it put in place. Beyond this quarter. the company sees a challenging year ahead, which is why it cut its full-year guidance range.
Drilling down into the numbers
Revenue was $786.8 million, which just missed estimates by about $5.5 million. It was also well below the $840.2 million the company earned in the first quarter of last year. Looking at the bottom line, Oceaneering generated net income of $69.5 million, or $0.70 per share. That not only beat the company's own guidance, but it also beat analysts' estimates by $0.08 per share. However, earnings were down from the $91.2 million, or $0.84 per share, it earned in last year's first quarter.
Weak oil prices were the culprit here, as it led to lower demand and pricing for many of the company's products and services. We can see the impact of the weak oil market on several of the company's segments in the following chart.
|
Revenue |
Operating Income |
Operating Margin | ||||
|---|---|---|---|---|---|---|
|
Segment |
Q1 2015 |
Q1 2014 |
Q1 2015 |
Q1 2014 |
Q1 2015 |
Q1 2014 |
|
Remotely Operated Vehicles |
$219.40 |
$255.80 |
$62.20 |
$76.70 |
28% |
30% |
|
Subsea Products |
$240.70 |
$260.00 |
$50.00 |
$54.50 |
21% |
21% |
|
Subsea Projects |
$153.60 |
$138.20 |
$22.30 |
$20.50 |
15% |
15% |
|
Asset Integrity |
$98.50 |
$124.20 |
$5.00 |
$14.10 |
5% |
11% |
|
Advanced Technologies |
$74.50 |
$62.00 |
$5.00 |
$3.00 |
7% |
5% |
Dollar figures In millions.
As that chart notes, the hardest hit segments were Remotely Operated Vehicles and Asset Integrity, which both saw revenue plunge, while Asset Integrity's operating margin also plunged. Several factors affected the Remotely Operated Vehicle segment as utilization slipped, revenue per day-on-hire dropped and pricing was weak. Meanwhile, Asset Integrity dropped on lower service demand. On the positive side, Subsea Projects and Advanced Technologies were relatively strong on both revenue and income.
A look ahead
Oceaneering sees the first-quarter weakness of Remotely Operated Vehicles and Asset Integrity continuing throughout 2015 and joined by a more recent weakness the company has been experiencing in its Subsea Projects business. Because of this weakness, the company sees second-quarter earnings per share in a range of $0.64-$0.70 per share. The company is also lowering its 2015 earnings-per-share guidance to a range of $2.80 to $3.20, which is down from $3.10 to $3.50 per share.
Despite the weakness it sees in 2015, Oceaneering remains confident that it's in the right business for the long term. The company sees its focus on providing products and services to the deepwater industry leading to solid long-term results because deepwater is expected to continue to play a very important role in supplying the world with oil in the years ahead. Because of this, the company expects demand for its products and services to rebound and rise over time, and it believes its long-term prospects remain promising.
Investor takeaway
Oceaneering's quarter was about as good as can be expected, given the deep downturn the oil market is experiencing. While the near-term outlook isn't that compelling, the longer-term story remains in place that the company is in the right place, even if now isn't the right time.
