Cactus (WHD) Q2 EPS Falls 18.5%

Cactus (WHD -5.81%), a key manufacturer of pressure control equipment and spoolable pipe for the oil and gas industry, released its second quarter results on July 30, 2025. The report showed the company missed analyst projections on both non-GAAP earnings and GAAP revenue, reflecting softness in North American oilfield activity and new pressures from tariffs. Earnings per share (non-GAAP) were $0.66 versus the $0.72 that analysts expected, while revenue (GAAP) was $273.6 million, falling short of the $278.8 million consensus. Both top- and bottom-line results declined compared to last year. Segment weakness in Pressure Control and adverse margin effects outpaced strength in Spoolable Technologies and continued strong cash flow. The overall assessment for the quarter: Cactus remains financially stable and is executing on strategic initiatives, but faces operational and margin headwinds in its core markets.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

Business Snapshot and Focus Areas

Cactus designs, manufactures, and services wellhead equipment and spoolable composite pipe products that are essential for drilling and pipeline operations. Its Pressure Control segment supplies wellhead and pressure-related equipment. The Spoolable Technologies segment, expanded by the FlexSteel acquisition, provides flexible composite pipes used for transporting oil, gas, and water.

The company’s success is closely tied to oilfield activity, which fluctuates with energy prices and capital spending by oil producers. Recent management efforts have focused on integrating FlexSteel, strengthening supply chains, and increasing international exposure to reduce reliance on the U.S. market. Key success factors include operational efficiency, manufacturing flexibility, customer relationships, and the ability to manage regulatory and tariff risks.

Quarter Review: Revenue, Margins, and Segment Performance

Cactus’s results were shaped by industry cyclicality and new cost pressures.

Total revenue (GAAP) fell 5.8% compared to Q2 2024.

This total missed Wall Street’s estimate by nearly $5.2 million (GAAP revenue). The main source of underperformance was the Pressure Control segment, where revenue dropped 5.5% sequentially and 4.0% from a year earlier (GAAP). Management cited “lower frac equipment rental” and “unexpected doubling of the Section 232 tariff” as key reasons for this segment’s revenue and margin declines. These tariffs increased costs for imported steel, and management expects the full impact to roll through the profit statement over coming quarters as pre-tariff inventory is depleted.

Pressure Control margins experienced sharp compression. Operating margin for the segment declined to 23.5%, down from 28.6% last quarter and 29.7% in the same period last year. Segment-adjusted EBITDA margin fell by over 5 percentage points year over year. In addition to tariff expenses, legal reserves tied to ongoing litigation added to the cost base.

Looking ahead, the company is working to neutralize the tariff impact by moving production to Vietnam, but expects only partial relief until API (American Petroleum Institute) certification for Vietnam manufacturing is completed.

In contrast, Spoolable Technologies delivered sequential revenue growth of 3.9%,

with operating income up 17.5% sequentially

and segment-adjusted EBITDA margin (non-GAAP) improving by 320 basis points.

Management noted that international demand, particularly for sour service pipe products to the Middle East, drove the better-than-expected results in this segment.

The company also highlighted strong demand from Canadian customers and the first commercial shipment of sour service pipe to the Middle East.

Net income margin (GAAP) fell to 17.9%, a drop of 3.8 percentage points from Q2 2024. Adjusted EBITDA margin declined to 31.7% (non-GAAP).

The company attributed these declines to lower sales volumes and increased costs, including tariffs and legal expenses.

Despite these margin pressures, cash flow remained strong, with cash and equivalents rising to $405.2 million and no outstanding bank debt. Capital expenditures were held in check and full-year 2025 net capital expenditures guidance was trimmed to $40–$45 million, reflecting a more conservative outlook in response to weaker activity.

The quarterly dividend was raised 8% to $0.14 per share, payable in September 2025. This marks continued commitment to shareholder returns, even as near-term profitability comes under pressure. Payments and distributions totaled $10.4 million.

International Strategy, Tariff Response, and Operational Initiatives

Regulatory and supply chain issues were a defining theme this quarter. Tariffs on imported steel, especially from China, increased unexpectedly, directly impacting input costs for Pressure Control products. The company’s response involves transitioning manufacturing from China to Vietnam. Management stated, “expect to neutralize the increased tariff expenses by mid next year. And although our margins may face modest compression between now and then, our inventory on hand and mitigating efforts will allow us to largely preserve our profitability on an absolute basis.” However, with its current inventory accounting methods and supply patterns, the full negative effects will unfold over several future quarters.

At the same time, the company’s strategy puts emphasis on capturing international growth.

Notably, Spoolable Technologies booked its first commercial sale of ‘sour service’ flexible pipe—a composite pipeline product designed for environments with high hydrogen sulfide (H2S) levels—in the Middle East. These international shipments, together with better factory efficiencies, helped offset domestic market softness.

Capital spending remained targeted and measured. Cactus continued investing in supply chain diversification, with planned expenditure at its Baytown manufacturing facility. The company aims to keep spending focused on efficiency and adapting to shifting tariff structures, rather than on major expansions. Cash generation from operations reached $82.8 million, supporting both investments and continued dividends without taking on debt.

The acquisition agreement for 65 % of Baker Hughes’s Surface Pressure Control business is underway. This transaction is intended to broaden Cactus’s international reach and add new products. Transaction-related expenses reached $3.5 million. Management described integration and planning as “progressing smoothly,” and noted positive initial feedback from key customers.

Outlook: Guidance and What to Watch

Management guided that revenue will fall modestly in both main segments, reflecting ongoing weakness in North American oilfield activity.

No firm revenue or earnings figures for the next quarter or full year were provided. The leadership team noted actions taken to “right-size our organization to align with expectations for the second half of the year.”

Progress in integrating the Baker Hughes Surface Pressure Control business is a key watch-point.

The company’s strong liquidity and recent dividend increase provide some financial cushion during this period of adjustment.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.