By Steve Gelsi

Smith International Inc.'s second-quarter income fell by 87% in the face of a steep drop in natural-gas demand in North America, financial results showed Tuesday.

The Houston energy-services provider (SII) earned $24.4 million, or 11 cents a share, down from $183.3 million, or 91 cents, in the year-earlier quarter.

The latest quarter's adjusted earnings from continuing operations came in at 15 cents a share.

Quarterly revenue fell to $1.94 billion from the prior year's $2.49 billion.

A survey of analysts by FactSet Research yielded a consensus profit estimate of 23 cents a share for the latest quarter.

Smith's management said unfavorable natural-gas fundamentals reduced North American spending on exploration and production.

Moreover, excess industry capacity led to "higher discounting in the number of the company's product and service offerings," the company said.

Shares of Smith International fell 5.8% to $24.72.

-By Steve Gelsi, 415-439-6400; AskNewswires@dowjones.com