Dril-Quip Slips by a Penny - Analyst Blog

Dril-Quip Inc. (DRQ) reported modestly weaker-than-expected second-quarter earnings of 70 cents per share, compared with the Zacks Consensus Estimate of 71 cents. The quarter’s earnings were, however, slightly higher than the year-earlier profit of 68 cents.
 
Revenues increased 6.6% year over year to $142 million driven primarily by the offshore rig equipment, partially offset by subsea and surface equipment revenues. Of the total revenue, Products revenue accounted for 86%.
 
Operating income in the quarter was $39.3 million, up 8.3% from the year-earlier quarter. Operating margin increased approximately 40 basis points to 27.7%.

Dril-Quip enjoys a strong market share in many of its established product lines and continues to see success from its new technologies.

At the end of the quarter, the company had a backlog of $538 million, compared with $550 million at the end of first quarter and $618 million at the end of second-quarter 2009.

Capital expenditures in the quarter were $14.4 million, compared with $9 million in the year-earlier quarter. At the end of the quarter, the company had $226 million in cash and $0.07 million in long-term debt.
 
Management guided third-quarter earnings per share in the range of 65 cents to 75 cents. Dril-Quip enjoys a solid backlog position and strong financial health, including an almost debt-free balance sheet.
 
As we believe that headwinds from the Gulf of Mexico drill ban will remain at least for the near term, Dril-Quip’s underlying business fundamentals may be affected given the fact that more than 42% of the company’s total revenue comes from this region. Consequently, our Underperform rating for Dril-Quip shares remain unchanged at this stage.