CAM Cameron International Corp.

Oil drilling equipment maker  FMC Technologies Inc. (FTI) reported second quarter earnings per share from continuing operations of 39 cents, beating the Zacks Consensus Estimate by a penny. Compared on a y-o-y basis, earnings remained flat.

Revenue of $1,229.4 million surpassed our expectations of $1,184.0 million and the second quarter 2010 level of $1,012.5 million. Strong contributions from all business units boosted the company’s performance in the quarter.

Energy Production Systems

The segment’s revenue for the reported quarter was $967.6 million, reflecting a 17.6% improvement from the prior-year quarter, buoyed by a 13% increase in surface wellhead revenue on the back of stronger North American activity.

Operating profit came in at $97.3 million, down 24.9% year over year. The negative comparison reflects lower margins in subsea systems combined with increased costs in surface wellhead.

Energy Processing Systems

Segment revenues were up 36.6% year over year to $262.9 million. The main reasons for the improved performance can be attributed to the sales ramp-up in the fluid control business, which had a record quarter.

Segment operating profit, at $53.9 million, increased 61.4% from the year-ago period, driven by higher volume in fluid control on the back of strong North American pressure pumping activity.

Backlog

As of June 30, 2011, FMC’s total backlog was $4,969.6 million, compared to $2,851.1 million at June 30, 2010 and $4,577.9 million at the end of first quarter 2011.

Of this, backlog for Energy Production Systems was $4,548.3 million (including $4,200 million in subsea systems backlog), while Energy Processing Systems' backlog finished the quarter at $421.3 million.

Balance Sheet

During the quarter, FMC spent $61.8 million on capital programs. As of June 30, 2011, the company had cash and cash equivalents of $428.0 million and long-term debt (including current portion) of $472.8 million, with a debt-to-capitalization ratio of 23.3%.

The company bought back 149,000 shares of common stock in second quarter 2011, at an average cost of $40.87 per share.

Guidance

Management guided toward 2011 earnings per share in the $1.60–$1.70 range.

Our Recommendation

We believe that FMC Technologies has a diversified product portfolio, specialty service capabilities and proprietary technological expertise. With a strong backlog position, growing international operations and favorable outlook for subsea activity levels, the company is set to sustain its growth momentum.

However, the volatile oil and gas fundamentals, competitive market and weak pricing are expected to weigh down on the company’s performance in the near term. FMC Technologies, which competes with Cameron International Corp. (CAM) and National-Oilwell Varco (NOV) in the ‘Oilfield Machineries and Equipment’ sector, currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.

 
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