What: Shares of Helix Energy Solutions Group Inc (HLX 1.93%) surged 34% by early-afternoon trading today. A stronger-than-expected profit was the chief catalyst behind the strong price appreciation. Lower costs and improved vessel utilization combined to fuel this improvement in profitability.
So what: Helix reported revenue of $182.2 million for the third quarter, which was actually a pretty awful number. That's because revenue was not only down 46.5% year over year, but it missed the consensus analyst estimate by $10.2 million. That said, on a sequential basis revenue increased 9%.
Fueling that sequential increase was an 11% revenue improvement in the company's robotic segment after vessel utilization improved to 87%. Helix's well intervention segment, likewise, delivered an 11% sequential increase in revenue. That segment's improvement was largely due to a greater number of utilized days for two of the company's North Sea vessels. The only downer was revenue from the company's production facilities segment, which was off slightly from last quarter.
Another area where Helix improved during the quarter was in reducing its costs. Sales, general, and administrative costs fell from 10% of revenue in the second quarter to just 7.5% of revenue this past quarter. Meanwhile, its net interest and other expenses dropped from $10.3 million in the second quarter to just $8.7 million in the third quarter largely due to a $5 million drop in charges relating to foreign exchange fluctuations.
Thanks to the overall improvement in asset utilization, and lower costs, earnings were a bit stronger than expected. Helix reported earnings of $9.9 million, or $0.09 per share. While that was down from the $75.6 million -- or $0.71 per share -- it earned in last year's third quarter, it actually beat the consensus estimate by a penny per share. This was a very welcome sight, especially after last quarter's poor showing.
Now what: While activity levels and utilization improved during the third quarter, Helix sees challenges ahead. The company expects that the fourth quarter will be affected both by seasonal factors, especially in the North Sea, and by the continued weakness in industry activities due to weaker oil prices. In other words, investors should expect more volatility ahead for Helix's stock.
