Crude oil prices have been volatile in recent years, and the ups and downs in the industry have dramatically affected oil services specialist TechnipFMC (NYSE:FTI). Customers that depend on TechnipFMC for its subsea, offshore, and land-based services have to be confident in their ability to make a profit from production at current prices to move forward with projects, and the reluctance among many oil and gas producers to do so has contributed to sluggish results for TechnipFMC in recent quarters.
Coming into Wednesday's third-quarter financial report, TechnipFMC investors were ready for challenging conditions to persist, and the company's financial results still reflected the difficult environment in energy. However, more signs have emerged that could point to a coming rebound. Let's take a closer look at what TechnipFMC and how investors could see better times ahead.
TechnipFMC still faces tough times
It's easy to dismiss TechnipFMC's third-quarter financial results as unattractive, but the company deserves a closer look. It's true that combined revenue on a pro forma basis was down 18% to $4.14 billion, sending net income down by almost two-thirds to $121 million. That produced adjusted earnings of $0.39 per share, which was well short of the consensus forecast among investors for $0.46 per share.
Yet a closer look at TechnipFMC's segments tells a different story. Much of the weakness in the company's operations centered on the subsea segment, where revenue dropped by three-eighths and operating profit was down more than 70%. Reduced project activity in Europe and Africa hurt the company's results, wiping out gains from better project execution, stronger cost controls, and corporate restructuring. Vessel utilization was also down sharply from year-ago levels. Inbound orders amounted to $980 million, but segment backlogs were down slightly to $5.95 billion.
TechnipFMC's other businesses did better. The onshore/offshore segment suffered a 4% drop in revenue, but operating profit soared by nearly three-quarters. The company completed several major projects, but stronger activity in the Middle East helped bolster profitability. TechnipFMC pointed to liquefied natural gas projects and refinery upgrades in explaining results, and inbound order activity of $1.2 billion helped bolster backlogs, which amounted to $7.56 billion. The surface-technologies business also did well, seeing a 20% jump in revenue and reversing a year-earlier operating loss. Overall, backlog of $13.9 billion was solid despite being down from three months ago, as was inbound order activity totals of about $2.46 billion.
What's next for TechnipFMC?
CEO Doug Pferdehirt praised the company's efforts. "We continued to deliver strong project execution in our onshore/offshore and subsea segments," Pferdehirt said, "as we achieved several key milestones." The CEO also noted that increased activity in North America helped improve the surface-technologies unit's results.
TechnipFMC is also optimistic about the future. "We believe that most major subsea projects can move forward at today's oil prices," said Pferdehirt. The company is also working on potential projects that could bring in more than $5 billion if it can beat out its competitors for the business. Indeed, the oil services provider was so pleased that it initiated a $0.13 per share quarterly dividend, marking a roughly 2% yield.
The optimism showed up in TechnipFMC's guidance. Subsea expectations were largely unchanged, but TechnipFMC sees better revenue and margin figures from the onshore/offshore unit. The company cut its revenue guidance but boosted margin expectations for the surface-technologies segment as well. Overall, TechnipFMC hopes to gain $400 million in annual savings from cost synergies by the end of next year, and that could help bolster profitability for the long run.
Investors in TechnipFMC didn't immediately react to the report, as the stock didn't move in after-hours trading following the announcement. Still, if oil can sustain recent gains, then the customers that TechnipFMC relies on might help build up its business to where it was when prices in the energy markets were much higher.