Most people are familiar with the giants of the energy industry, but there are hundreds of companies that play a supporting role in the industry but aren't household names. FMC Technologies (FTI 5.41%) offers drilling services both on land and under the sea, and some energy services providers have suffered as much as oil and gas exploration and production companies have. Coming into Tuesday's first-quarter financial report, FMC investors knew that the weak energy market would have a dramatic downward impact on the company's results, but even they didn't realize that FMC's actual performance wouldn't be enough to meet their lowered expectations. Let's take a closer look at the latest from FMC Technologies and whether the company sees any light ahead.
FMC Technologies continues to sag
FMC Technologies' first-quarter report didn't have much for optimistic investors to cling to for support. Revenue fell 29% to $1.21 billion, which was even worse than the 24% decline that most investors were expecting FMC to post. GAAP net income plunged more than 85% to just $19.8 million, and even after taking out the impact of impairments, restructuring and severance charges, and other one-time items, adjusted earnings of $0.22 per share missed the consensus forecast by $0.08 per share.
None of FMC's major segments performed well. In the Subsea Technologies division, revenue fell 25% to $864 million, of which about five percentage points were due to the strong dollar. Operating profits fell 35% from year-ago levels, and declines in revenues were the primary culprit after taking currencies and charges into account. Inbound order activity amounted to almost $346 million, and backlogs for the segment totaled $3.4 billion.
For the Surface Technologies segment, revenue was off 41% to $265.5 million. The company blamed a huge drop in land-based activity in North America, and one-time charges sent FTI's operating results to a loss of $28.6 million. Even after adjusting for charges, adjusted operating profits fell more than 80% year-over-year, with pricing pressures adding to the overall negative environment in the North American energy industry. Inbound orders were $258.5 million, with $429.4 million in backlog.
Finally, the Energy Infrastructure division predictably suffered declines as well. Revenue fell 17% to $84.1 million, and the segment posted an operating loss of $3.3 million. Inbound orders of $73.8 million and backlog of $157.7 million showed the relatively small size of the unit.
Overall, inbound orders took a bit hit, falling more than 30% to $671.6 million. Order backlogs were down almost as much to $3.96 billion, with all of the big segments taking substantial declines.
What's ahead for FMC Technologies?
CEO John Gremp didn't have many words to say about the results, but what he did say tried to put the company's situation in perspective. "We benefited from solid execution and restructuring savings" in the Subsea Technologies area, Gremp said. The CEO also noted that "while operators' reduced capital spending continues to delay large deepwater projects, we believe that our subsea service orders will remain fairly resilient in 2016."
What's equally clear is that FMC Technologies believes that the market is undervaluing the long-term value of the company. Even in an environment in which capital is growing increasingly scarce and difficult to raise, FMC spent more than $28 million on stock buybacks during the quarter. The company said it repurchased roughly 1.1 million shares at an average price of $25.58 per share. Given that the stock currently trades about $3 per share higher, the buy appears to have been well-timed.
Traders are likely to respond to FMC Technologies' poor results with an immediate share-price decline when the market opens on Wednesday. Yet in the long run, if the energy markets continue to claw their way back, demand for drilling services should return. That could help make FMC a more viable play in the energy sector going forward.