Dril-Quip Reports In Line - Analyst Blog

Dril-Quip Inc. (DRQ) reported third-quarter earnings of 69 cents per share, in line with the Zacks Consensus Estimate. However, quarter's earnings increased more than 9% from the year-earlier profit of 63 cents.

Total revenue increased 1.4% year over year to $140.1 million, primarily driven by increased product revenues, but partially offset by a decrease in service revenues of $1.1 million. However, the reported revenue fell behind the Zacks Consensus Estimate of $142 million.

Operating income was $37.7 million in the quarter, up 9.6% from the year-earlier quarter. 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 $625 million, compared with $538 million at the end of second quarter and $623 million at the end of third-quarter 2009.

At the end of the quarter, the company had $258 million in cash and $0.50 million in long-term debt. Capital expenditures in the quarter were $26.6 million, compared with $15.2 million in the year-earlier quarter.

Management guided fourth-quarter earnings per share in the range of 64 cents to 74 cents. In the deepwater space, Dril-Quip enjoys a favorable position given its solid backlog position and strong financial health, including an almost debt-free balance sheet.

The key positive in the Dril-Quip story is the company's strong leverage to continued strength in the global deepwater drilling markets, especially in South America and the Asia-Pacific region. Given the operators' long-term outlook on these projects, deepwater drilling and other related services will remain relatively stable despite usual fluctuations in commodity prices.

However, we believe headwinds from the Gulf of Mexico drill ban will remain at least over the near term and Dril-Quip's underlying business fundamentals may be affected as the major portion of the company's total revenue comes from this region. Consequently, our long-term Neutral rating for Dril-Quip shares remain unchanged at this stage. The company holds a Zacks #3 Rank (short-term Hold rating).