Oil States International's (NYSE:OIS) earnings result continued its internal tug of war this past quarter. U.S. shale drilling continues to be the belle of the ball in the oil market, but it has reached that status at the expense of other production sources internationally and offshore. Since Oil States had a finger in both of these pies, it has been able to offset the declines of one business with the gains from the other. 

Let's take a quick look at Oil States' most recent earnings release and outlook at the near-term future to see when we can expect both businesses to be on the upswing. 

Drilling equipment

Image source: Getty Images.

By the numbers

Metric Q2 2017 Q1 2017 Q2 2016
Revenue $171 million $151 million $176 million
Operating income ($18.5 million) ($23.3 million) ($17.2 million)
Net income ($14.2 million) ($17.6 million) ($11.7 million)
Earnings per share ($0.28) ($0.35) ($0.23)

Data source: Oil States International earnings releases.

Much like the past few quarters, Oil States has two business segments running in opposite directions. The company's onshore business lines have improved substantially over the past few quarters. In fact, segment EBITDA for its well site services business posted a positive result for the first time in a while. While the company has certainly ridden the rising tide of drilling activity in the U.S., management noted that its sales in major shale basins outpaced overall rig count and drilling activity growth rates. 

Its manufactured products and offshore business, however, hasn't fared quite as well. Revenue and segment EBITDA for the most recent quarter fell 25% and 37%, respectively, as offshore drilling activity remains on the decline. Recently, though, several major oil and gas companies gave the final investment decision (FID) for offshore development projects. While it may take some time before these projects translate to revenue for Oil States, the company has posted a book-to-bill ratio greater than 1.0 over the past six months. 

Even though Oil States' income statement shows a loss, the company continues to generate free cash flow. Over the past six months, it has generated enough cash from operations to cover its capital spending program, make a $12 million acquisition, and repurchase $16 million worth of shares. With shares trading at 1.4 times tangible book -- well below their 10-year historical average -- this is one of those times where management teams should be buying back shares. Oil States still has $120.5 million remaining under its current share repurchase authorization.

What management had to say

Here's Oil States International CEO Cindy Taylor's outlook for the company.

[T]he outlook for E&P customer spending on U.S. on shore drilling and completions related activity is expected to steadily increase over the balance of 2017 which should create incremental demand for our completion services along with demand for our shorter cycle manufactured products. This growth should help mitigate near-term declines in major project work in our Offshore Manufactured Product segment.

We are still anticipating improved major project order flow during the second half of this year, which should increase bookings and our overall levels of backlog in the second half of 2017.

This statement is pretty consistent with what other oil services executives have said in press releases and transcripts. The North American market is humming along quite nicely, and there are some small pockets internationally where activity is on the upswing again. Pending any unforeseen changes, these trends should continue at least through the rest of the year.

What a Fool believes

Not much has changed since the last time Oil States International reported earnings. Its land-based products and services have helped make up for the challenging offshore market conditions. Management has managed the variables it can control -- cost control, lower capital expenditures -- rather well, but they can only do so much when the overall industry is stuck in a rut.

The good news is that the industry looks to be headed for an upswing soon. Once those development projects get the green light, chances are Oil States will capture some of that work. With a nearly debt-free balance sheet and a business that is still generating free cash flow, Oil States International is a stock worth following as we head closer to a full-blown oil and gas recovery. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.