Energy companies have had a big adjustment to make in the wake of plunging oil prices, and the ripple effects have spread all the way across the industry. Drilling services provider FMC Technologies (NYSE:FTI) has had to deal with a slower flow of business, and coming into Wednesday's third-quarter financial report, FMC investors fully expected to see another big drop in revenue and profits. FMC's sales were even worse than most had feared, but the company did a good job of managing to cushion the blow to its bottom line. Let's take a closer look at how FMC Technologies did and whether the company can expect better things in the future.
Lackluster energy performance is still hurting FMC
FMC Technologies' third-quarter financial report continued to show just how huge the negative impact to the energy industry has been. Sales declined by nearly 30% to $1.09 billion, which was far worse than the $1.15 billion that represented the consensus forecast among investors. GAAP net income saw even more dramatic declines, getting cut by more than half to $32 million. However, after making allowances for certain extraordinary items, adjusted earnings of $0.35 per share were well above the $0.23 per share that most of those following the stock had expected to see.
FMC felt the pain in the energy industry across the board. The company's subsea technologies division suffered a 27% drop in revenue, while the surface technologies business took an even larger hit that approached 40%. The small energy infrastructure unit took about a 20% decline in sales. From an operating profit perspective, subsea technologies accounted for substantially all of FMC's operating earnings, but even it saw a 30% decline. Surface technologies posted an only slightly narrower operating loss compared to last year's third quarter, and although energy infrastructure reversed a year-ago loss with a small profit, the $2.5 million it generated didn't make much of a dent in the declining fortunes for the overall business.
Inbound order activity looked even worse. Overall, total orders fell by more than half to $692 million, with subsea technologies taking the brunt of the hit. Order backlogs dropped by almost two-fifths to $3.02 billion, and although that was up slightly on a sequential business, it still shows just how hard-hit FMC's business has been.
What's ahead for FMC Technologies?
New CEO Doug Pferdehirt went out of his way to try to keep everything as positive as possible. "Subsea Technologies achieved further improvement in segment operating margins," Pferdehirt said, "with third-quarter results being the highest levels we have recorded in 2016." The CEO also cited solid project execution and cost reduction initiatives as driving its bottom-line success.
In addition, FMC is working hard to try to make structural changes to its operations to be as efficient as possible. As Pferdehirt put it, "We have used this downturn as a catalyst to make fundamental changes to our business model that will continue to provide sustainable benefits."
Perhaps most importantly, FMC highlighted a second major order related to subsea multiphase boosting pumps. The company has aimed to develop its expertise in what it sees as a growth opportunity in the industry, and FMC anticipates that small orders will eventually evolve into larger projects that will become more profitable business in the long run.
Investors in FMC Technologies reacted fairly positively to the news, sending the stock up by almost 2% in after-hours trading following the announcement. If oil prices can continue to climb above the $50-per-barrel mark and gain some positive momentum, then the resulting boost in drilling activity throughout the industry could finally get FMC back on a more sustained track toward a full recovery.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends FMC Technologies. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.