Cameron's Profit Continues in 3Q - Analyst Blog

Oil drilling equipment maker Cameron International Corp. (CAM) reported third quarter 2010 earnings per share (excluding special items) of 64 cents, surpassing the prior-year quarter result of 58 cents and the Zacks Consensus Estimate of 60 cents.

Considering the integration expense, associated with the NATCO Group acquisition and the litigation costs related to the Deepwater Horizon matter of 3 cents, earning per share in the quarter came at 61 cents, compared with 56 cents in the prior-year quarter.

Cameron's impressive earnings reflect a lower interest expense along with a strong order and backlog levels.

The company generated total revenue of $1,527.1 million in the quarter, up 24% year over year, attributed to strong contributions from all the business units. However, the results failed to meet our expectation of $1,581 million.

Segment Analysis

During the quarter, Cameron restructured its business segments. The Process Systems business, previously a unit of Drilling & Production Systems segment, was combined with the Compression Systems. Thus, a new segment named Process & Compression Systems was created.

Drilling & Production Systems (DPS): Revenues for the DPS segment totaled $944 million, up 30.5% from the year-ago quarter. The DPS segment EBITDA rose 21.5% year over year to $185.6 million.

Valves & Measurement (V&M): Quarterly revenues in the V&M segment totaled $312.7 million, up 6.1% year over year, while the segment EBITDA fell 18.0% year over year to $54.0 million.

Process & Compression Systems (PCS): Revenues in the PCS segment increased 26.7% year over year to $270.4 million and the segment EBITDA witnessed a year-over-year jump of 29.4% to $56.4 million.

Backlog

During the quarter, Cameron received orders totaling $1.48 billion, up 10.0% year over year, mainly due to increases in its V&M and PCS business segments. The composition of current order booking is DPS – 48.5%, V&M – 26.8% and PCS – 24.7%.

As of September 30, 2010, total backlog stood at $4.94 billion, down marginally (by 3.6%) from the year-earlier level, reflecting lower DPS backlogs.

Capital Expenditure & Balance Sheet

During the quarter, Cameron spent $45.6 million on capital expenditures. As of September 30, 2010, cash and cash equivalents stood at $1.5 billion, while total long-term debt (including current portion) stood at $1.3 billion (debt-to-capitalization ratio of 23.4%).

Guidance

Management expects 2010 full-year earnings to be in the range of $2.38 to $2.40 per share, while that for fourth quarter 2010 will likely be between 65 cents to 67 cents.

Our Recommendation

We believe that the company's segment redesigning highlights its efforts to concentrate on segregated markets with the help of reduced expenses.  

Cameron currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.