Huge Order Flows Give TechnipFMC Hope

Dan Caplinger, The Motley Fool

Updated Thu, Apr 25, 2019, 7:10 PM

Navigating the energy industry is always challenging, especially given constantly shifting prices for crude oil, natural gas, and other energy products. Drilling-services specialist TechnipFMC (NYSE: FTI) has had to deal with huge hiccups in capital-spending budgets among its exploration and production company customers for years, and it's been waiting for a recovery to help it get some of its lost business back.

Coming into Thursday's first-quarter financial report, TechnipFMC investors were looking for modest gains in both revenue and earnings. TechnipFMC's quarterly results dashed any hopes of seeing an immediate boost to those metrics, but extremely strong order volume suggested that the energy-services company could see a lot more activity later on in 2019.

Drillship with derrick at one end, surrounded by seawater.

Image source: TechnipFMC.

An ugly quarter for TechnipFMC

TechnipFMC's first-quarter financial results looked awful. Sales came in at $2.91 billion, down 7% from year-ago levels and disappointing those who'd expected to see roughly flat performance on the top line. Adjusted net income plunged almost 80%, to $27.3 million, and the resulting adjusted earnings of $0.06 per share didn't come close to matching the consensus forecast among investors for $0.29 per share.

TechnipFMC got disparate performance from its various segments. The surface-technologies unit was the one that saw the largest revenue gain, with segment sales gaining 6% as overseas demand for pressure-control equipment offset weakness in North America. However, pre-tax operating earnings dropped 40% from year-earlier levels.

The subsea division saw a smaller 0.4% rise in segment revenue as lower vessel utilization offset growth in services demand, but pre-tax operating earnings were down 19% as competition forced TechnipFMC to take on lower-priced business.

The sales pressure for TechnipFMC came from the onshore/offshore division, where segment revenue dropped 15%. Major projects moved closer to completion, contributing to the slowdown in sales, and pre-tax operating profit declined 9% as the change in revenue mix affected the bottom line, as well.

However, the good news for TechnipFMC was that it enjoyed big gains in inbound orders and backlog. In total, inbound order volume jumped 77%, to $6.18 billion, lifting backlog levels by 27%, to $17.78 billion. Subsea orders doubled from the same time a year ago, while only the surface-technologies division saw modest declines in order flow. All in all, TechnipFMC had a book-to-bill ratio of 2.1, pointing the way toward a possible recovery in the near future.

Can TechnipFMC finally succeed?

CEO Doug Pferdehirt was pleased with the amount of order activity that came in during the quarter. Noting that the figure was the highest since the fourth quarter of 2014, Pferdehirt said, "This reflects the strength of our integrated subsea model, our demonstrated capabilities in downstream and gas monetization, and continued growth in international surface markets."

Looking forward, TechnipFMC set some priorities. The company believes that five liquefied natural gas projects have the highest probability of success and are best aligned strategically to its areas of core strength in the onshore/offshore business. However, weak activity in North America has disappointed the company, and it no longer believes that the North American energy market will have the recovery that it had previously anticipated. With major contract awards in the first four months of 2019, TechnipFMC sees itself making inroads with some of the giants of the industry -- relationships that could pay off in the long run.

As a result, TechnipFMC adjusted its 2019 guidance, boosting its projected revenue by $200 million to set a new range of $13 billion to $13.7 billion for the year. The company kept subsea sales guidance unchanged at $5.4 billion to $5.7 billion, but it boosted onshore/offshore revenue projections by $300 million to a new range of $6 billion to $6.3 billion. A $100 million reduction in projections for surface technologies to between $1.6 billion and $1.7 billion rounded out the guidance, and some minor margin adjustments also reflected the greater opportunity in onshore/offshore compared to surface technologies.

Investors didn't have a strong reaction to the report, and the stock was unchanged in after-hours trading following the announcement. Everything will now depend on TechnipFMC making good on its increased order flow and converting it into revenue and profit growth during the rest of 2019 and beyond.

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