The recovery in the oil market continues to come in fits and starts. That unevenness was evident in Oceaneering International's (NYSE:OII) third-quarter results. While they came in about what the company expected, Oceaneering experienced some unanticipated issues in one of its segments, which it was able to mitigate with stronger performance elsewhere. The company sees more unevenness ahead, which will likely cause its results to remain lumpy.

Oceaneering results: The raw numbers

Metric

Q3 2018

Q3 2017

Year-Over-Year Change

Revenue

$519.3 million

$476.1 million

9%

Adjusted net income

($13.9 million)

$3.2 million

N/M

Adjusted earnings per share

($0.14)

$0.03

N/M

Data Source: Oceaneering International.

What happened with Oceaneering this quarter? 

Oceaneering took a few steps forward and one back:

  • Oceaneering International's results were somewhat mixed. While revenue rebounded 9% versus the year-ago period, its profitability evaporated. However, compared with the second quarter, sales were 8% higher while its net loss narrowed.
  • Driving the sequential improvement was stronger results in the company's subsea projects and subsea products segments. Revenue out of subsea products jumped 13% due to increased activity in its manufactured products businesses, which helped boost profitability. The segment also reported strong new orders growth, which grew its backlog from $245 million to $333 million over the last quarter.
  • Subsea projects, meanwhile, returned to profitability, fueled by a 35% sequential increase in revenue. Driving that segment's strong showing was an improvement in utilization levels and pricing in the U.S. Gulf of Mexico.
  • The company's non-energy advanced technology segment posted a slightly better-than-expected quarter due to increased project activity in its commercial theme park unit.
  • Offsetting those positives was Oceaneering's remotely operated vehicles segment. While several key metrics improved, average revenue per day on hire declined 6% due to a geographic shift in activity to areas with lower rates. Because of that, margins in the segment slipped, which took profitability down as well.
An offshore drilling rig in a storm.

Image source: Getty Images.

What management had to say 

CEO Rod Larson commented on the quarter, stating:

Our consolidated third quarter 2018 operating results met our expectations. However, from a segment perspective, these results were not achieved in the manner we initially anticipated. Compared to our adjusted second quarter 2018 results, operating results for the third quarter 2018 improved by $10.4 million, mainly due to favorable profit contributions from Subsea Projects and Subsea Products, and lower Unallocated expenses, partially offset by lower profitability in our Remotely Operated Vehicle (ROV) segment. We are pleased that each of our operating segments was profitable and on a consolidated basis we generated adjusted EBITDA of $47.2 million. 

As Larson notes, Oceaneering's results came around where it expected even though its ROV segment underperformed. On the one hand, utilization in that segment improved from 54% of its fleet to 56% due to the positive impact higher oil prices are having on offshore drilling activities. However, the company wasn't able to convert this increased utilization rate into better financial results due to two issues. First, the company earned less revenue per ROV because it shifted its activities to areas that had lower rates. In addition to that, the company didn't operate as efficiently as expected when it reactivated equipment and crew to benefit from the improvement in activity levels.

Looking forward 

Oceaneering's CEO said that he believes that "our fourth quarter 2018 results will be lower than our adjusted third-quarter results due to the onset of seasonality leading to reduced levels of offshore energy activity." Because of that, the company anticipates that its full-year results will be in the lower half of its guidance range. However, on a more positive note, Larson stated that "looking into 2019, we are projecting increased activity levels in each of our segments, likely led by revenue gains in our Subsea Products manufacturing business unit." While the company isn't ready to issue 2019 guidance, it does see better days ahead.

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool recommends Oceaneering International. The Motley Fool has a disclosure policy.