Investors displayed some trepidation heading into FMC Technologies' (FTI 1.66%) post-market close announcement of first-quarter results on Tuesday, sending the shares down 4.5% on the day. (Its closest comparable companies also trailed broad market indexes today, but FMC Technologies was the worst performer.) However, that decline appears to have been excessive, with the stock recouping part of that loss in the after-hours session; shares were up 1.9% at 4:55 p.m. ET.
The following table summarizes the headline numbers:
|
|
Actual/Year-on-Year Increase (Decline) |
Analysts' Consensus Forecast |
|---|---|---|
|
Revenues -- miss |
$1.70 billion (7%) |
$1.82 billion |
|
Earnings per share -- beat |
$0.63 +11% |
$0.59 |
Sources: Thomson Financial Network, FMC Technologies.
FMC Technologies faces three significant challenges, ranging from broad to very specific.
Macro factor: dollar strength
FMC Technologies managed to combine a significant miss on the top line with an earnings beat -- and as I pointed out this morning, that phenomenon is not uncommon in this earnings season. Pointing to the strength of the U.S. dollar to explain a shortfall on the top line has become a familiar refrain this quarter, and FMC Technologies said revenues in its largest segment, Subsea Technologies, fell 4% year on year to $1.2 billion because of "the strength of the U.S. dollar." The good news: Operating profit rose 19%, primarily because of "improved execution and stronger project margins related to backlog conversion."
Industry factor: oil price weakness
The decline in the price of oil appears to have had its greatest impact on FMC's No. 2 segment, Surface Technologies, where revenues fell 7% year on year because of "decreases in the North American market," which also drove the 28% decline in segment operating profits.
Company-specific factor: Petrobras
The ongoing financial scandal affecting Petrobras (PBR +0.14%) is a problem for FMC Technologies. As of last quarter, the Brazilian national energy producer represented the largest component of FMC's backlog. During last quarter's conference call, CEO John Gremp offered investors strong reassurances that this business was stable, stating:
Our execution performance on that backlog has been excellent. ... I'm sure there will be some moving around of the backlog a little bit, but, right now, the backlog is secure and our relationship with Petrobras remains strong, and I don't envision that changing.
FMC Technologies' CFO, Maryann Seaman, was a bit more explicit, explaining that "what was initially going to be in 2015, they've asked us now to shift a small portion of that into 2016." Investors will want to pay attention to tomorrow's earnings conference call to monitor how the situation has evolved.
Looking forward
While FMC Technologies recorded $969 million in total inbound orders during the quarter, including $552 for Subsea Technologies, that total failed to replace backlog conversion and cancellations. Total backlog fell 17% to $5.5 billion, of which $4.8 billion was for Subsea Technologies. However, orders in Subsea Technologies are expected to accelerate, with the company expecting $3 billion in inbound orders this year.
FMC Technologies faces some challenges, but this quarter's results look quite acceptable, given the current environment. The company remains profitable on the basis of GAAP net income and -- more importantly -- free cash flow; moreover, its balance sheet is not heavily leveraged. Finally, having taken a beating over the past 12 months, the shares look reasonably priced -- though not wildly cheap. FMC Technologies continues to execute: The long-term thesis for holding the shares is intact.
