Cameron Tops, Overcomes GoM Crisis - Analyst Blog

Oil drilling equipment maker Cameron International Corp. (CAM) reported second quarter earnings per share (excluding special items) of 58 cents, surpassing the Zacks Consensus Estimate of 55 cents. The better-than-expected results were mainly driven by solid performance in the execution of project-related business. However, revenue of $1.45 billion fell slightly short of our expectations of $1.47 billion.

Cameron’s earnings outperformance is more impressive in the wake of its role in the huge oil spill accident in the Gulf of Mexico (GoM).

As a reminder, on April 20, offshore driller Transocean Inc’s (RIG) ultra-deepwater Horizon drilling platform, contracted to British major BP Plc (BP), sank following an explosion while operating in the U.S. GoM off the coast of Louisiana. The incident killed 11 workers and caused what is considered the worst oil spill in U.S. history. Cameron, which was the original manufacturer of the blow-out prevention equipment on the ruptured well, had been embroiled in the incident.

Year-Over-Year Comparisons

Compared with the year-ago period, Cameron’s adjusted earnings per share declined 3.3% (from 60 cents to 58 cents) due to weak Compression Systems (CS) segment profitability. However, gross profit during the period came at $468.0 million, up 9.0% year over year, as revenues rose 14.4% to $1.45 billion. Gross profit margin decreased approximately 160 basis points year over year to 32.2%, reflecting rising costs.

DPS Segment

Revenues for the Drilling & Production Systems (DPS) segment totaled $1.0 billion, up 18.0% from the year-ago quarter, mainly due to contributions from the 2009 NATCO acquisition and increased subsea systems deliveries. The DPS segment EBITDA rose 8.3% year over year to $209.2 million.

V&M Segment

Quarterly revenues in the Valves & Measurement (V&M) segment totaled $325.3 million, up 19.7% year over year, while the segment EBITDA witnessed a 7.0% year over year rise to $56.2 million. This was on account of strong North American business activity levels.

CS Segment

Revenues in the Compression Systems (CS) segment totaled $109.5 million, a 19.4% year over year fall. This dragged down the segment’s EBITDA by 42.8% to $15.0 million. The negative comparisons were due to continuing softness in the industrial markets worldwide.

Backlog

During the quarter, Cameron received orders totaling $1.4 billion, up 54.0% year-over-year, mainly due to increases in its DPS and V&M business segments. The composition of current order booking is: DPS – 66%, V&M – 24% and CS – 10%. As of June 30, 2010, total backlog stood at $4.9 billion, down marginally (by 1.9%) from the year-earlier level, reflecting lower DPS and CS backlogs.

Capital Expenditure & Balance Sheet

During the quarter, Cameron spent $38.2 million on capital expenditures. As of June 30, 2009, cash and cash equivalents stood at $1.4 billion, while total long-term debt (including current portion) stood at $1.3 billion (debt-to-capitalization ratio of 24.5%).

Guidance

Management raised its 2010 full-year earnings guidance to $2.30 – $2.35 per share (up from the previous projection of $2.20 – $2.30 per share), while that for the third quarter of 2010 is projected to be between 58 – 60 cents.

Our Recommendation

Cameron shares are currently rated as Zacks #3 Rank (Hold), implying that the stock is expected to perform in line with the broader U.S. equity market over the next one to three months. This is supported by our long-term Neutral recommendation.
 
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