Dril-Quip Inc. (DRQ) has reported adjusted fourth-quarter 2011 earnings of 79 cents per share, beating comfortably the Zacks Consensus Estimate of 62 cents and increasing almost 15% from the year-ago profit level of 69 cents.
The company registered total revenue of $171.6 million in the quarter, up 21.2% from the year-ago level of $141.6 million. The increase in revenue was mainly backed by the rise in sales of subsea equipment and growth in service revenues. The reported figure also surpassed the Zacks Consensus Estimate of $155 million.
For full-year 2011, the company’s adjusted earnings were $2.45 per share, down from the year-earlier level of $2.82. However, total revenue improved 6.2% to $601.3 million in 2011 from the year-ago level of $566.3 million.
Operating income expanded 36% to $36.8 million from the year-earlier level of $27.01 million. The company also faced a considerable rise in costs. On an annualized basis, selling, general and administrative expenses rose 12.4% to $17.9 million from the year-earlier level of $16.0 million, while its engineering and product development costs rose 11.6%.
Backlog
As of December 31, 2011, the company had a backlog of $716 million, compared with $627 million at year-end 2010.
Capex
Capital expenditures in the quarter were $11.1 million, compared with $26.2 million in the year-earlier quarter.
Guidance
Dril-Quip expects its 2012 earnings to range between $2.60 and $2.80 per share. For the first quarter of 2012, earnings are projected between 60 cents and 70 cents per diluted share, excluding any unusual or special charges.
Our Take
We are maintaining our long-term Neutral recommendation on Dril-Quip, reflecting its strong market share and robust backlog, partially offset by the challenging macro environment. The key positive in the Dril-Quip story is its strong leverage to continued growth in the global deepwater drilling markets, especially in South America and the Asia-Pacific region.
However, we remain apprehensive about Dril-Quip’s exposure to the highly volatile oil and gas sector fundamentals. We also remain concerned about risks from new product development challenges, manufacturing difficulties and peer competition. Further, competition from Cameron International Corporation (CAM) is also a concern.
The company holds a Zacks #4 Rank (short-term Sell rating).
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