After the bell Monday, Varco reported fourth-quarter net income of $4.6 million, or five cents a share, including 15 cents a share in charges and losses related to its exit from the drilling rig fabrication business, Morinoak International Ltd. In the year-earlier period, the company earned $21.4 million, or 22 cents a share, including losses of a penny a share related to Morinoak.
Results excluding items fell short of the Wall Street estimates of earnings of 25 cents a share. Revenue for the most recent period was $349.7 million, down from $354.5 million a year ago and analysts' estimate of $361.7 million.
Fourth-quarter earnings reflected lower margins stemming from declining demand in its drilling-equipment sales group, particularly in offshore rig construction, the company said.
As a result, Varco launched a restructuring effort in this business that will include the layoff of 200 employees. The company will also consolidate operations and move certain manufacturing functions. It also is considering whether to close other manufacturing facilities in the future.
The restructuring will generate annual savings of $20 million in its drilling- equipment sales unit, but the company expects to recognize $5 million in severance and relocation charges in the first half of 2004.
Last week, the company said it would exit from MIL, which it acquired in September 2001, and revised downward its outlook for the fourth quarter.
A representative for Varco couldn't be reached for comment.
Separately, Lehman Brothers Holdings Inc. downgraded the stock following a lowered outlook for the entire oil service sector.
"We continue to believe the earnings upturn for Varco will be more muted than its peers, given our view that the newbuild cycle has been pushed out," said Lehman analyst James Crandall, downgrading the Houston concern to underweight from neutral in conjunction with a sector downgrade.
"Given the sharp run-up in share prices since late-November and our continued expectations for moderate growth in world-wide exploration and production expenditures in 2004-2005, we are downgrading our opinion on the oil service group to neutral from positive," Mr. Crandall wrote.
At 4 p.m. EST, shares of Varco were off $3.03, or 14%, to $19.20 in trading on the New York Stock Exchange.
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