Revenues and Operating Income Increased Year-Over-Year, Reflecting Increased Rig Counts
Year-over-year consolidated revenues increased $39.3 million, or 21%, in the first quarter of 2004 compared to the same period last year. Consolidated operating income margins increased from 9% in last year's first quarter to 12% in the first quarter of 2004. These increases were due to increased drill pipe sales in the Drilling Products and Services segment coupled with favorable results from new product lines in the Drill Bits segment. Consolidated operating income also includes other charges of $1.8 million related to exit costs associated with the Drilling Products rationalization program and $0.9 million of severance costs related to the recent Tubular Technology and Services organizational restructuring.
Other operating expenses (sales and marketing, general and administrative, and research and engineering) as a percentage of revenues increased slightly to 24% from 23% in last year's first quarter.
Included in other income (expense) in the first quarter of 2004 were net gains on sales of assets of $2.8 million, which includes $2.0 million related to the Drilling Products rationalization program announced last quarter.
Drilling Products and Services
Revenues for the Drilling Products and Services segment increased 32% compared to last year's first quarter. Operating income margins increased from 12% in last year's first quarter to 15% in the first quarter of 2004. Included in operating income for the first quarter of 2004 were charges of $1.8 million due to lease termination, severance and other exit costs related to the Company's manufacturing rationalization program. These increases were primarily driven by a 13% improvement in drilling activity over last year's first quarter and a large order for a new project in the Gulf of Mexico. In the first quarter of 2004, the Drilling Products segment delivered a unique string of premium, completion drill pipe to be used to drill the deepest and highest-pressured production well in the Gulf of Mexico.
Revenues for the Drill Bits segment increased 49% to $79.3 million, representing the second highest quarter in ReedHycalog's(TM) history. Operating income margins increased from 19% in last year's first quarter to 24% in the first quarter of 2004. These increases reflect strong worldwide market penetration of ReedHycalog's TReX(TM), SteeringWheel(TM) and Rotary Steerable Bit technologies, as well as revenue contributions from recently introduced TuffDuty(TM), TuffCutter(TM) and Titan(TM) roller-cone products, which now represent 25% of all roller-cone revenues.
Tubular Technology and Services
In the first quarter of 2004, the Company announced an organizational restructuring that resulted in the Marine Products and Services businesses now being reflected in the Tubular Technology and Services segment. Prior periods have been restated for comparability.
Revenues for the new Tubular Technology and Services segment in the first quarter of 2004 were $64.4 million compared to $67.5 million in last year's first quarter. The year-over-year decrease was primarily due to the sale of the Company's Rotator division in the third quarter of 2003 partially offset by increased riser sales. Operating income of $2.8 million in the first quarter of 2004, which includes a severance charge of $0.9 million related to the organizational restructuring, compares to $3.3 million in last year's first quarter. Excluding the organizational restructuring charge, operating income improved $0.4 million over last year's first quarter as a result of improvements at XL Systems, Atlas Bradford and Texas Arai, which more than offset declines in the segment's other product lines.
Revenues for the Other segment in the first quarter of 2004 were $0.9 million compared to $5.2 million in last year's first quarter. The significant decrease in revenues was due to the exiting of the industrial product lines during 2003.
Operating loss was $1.2 million in the first quarter of 2004 compared to an operating loss of $0.5 million in last year's first quarter. The 2004 operating loss represents losses from the Company's discontinued product lines and joint ventures.
Corporate expenses for the first quarter of 2004 were $6.5 million compared to $4.3 million in last year's first quarter. The year-over-year increase was primarily due to higher depreciation due to implementation of the Company's new ERP system and higher incentive costs.
Capital Spending and Debt
Capital expenditures for the first quarter of 2004 totaled $6.3 million compared to $10.5 million in last year's first quarter.
Total debt at March 31, 2004 was $423.6 million, down $14.3 million from December 31, 2003.
Backlog at March 31, 2004 was $176.3 million, up from $120.6 million at December 31, 2003. This 46% increase primarily reflects higher demand from customers who have reduced their inventories of drill stem products and are now beginning to order new products. Much of this backlog is slated for delivery in the second half of the year. Additionally, the backlog for XL products has improved by 41%.
The Company's Chairman, President and CEO, Michael McShane, commented, "We are pleased with our progress this quarter. Our Drilling Products segment had its first meaningful increase in bookings, which raised our quarter-end backlog to a level higher than where it has been in the last two years. Our Drill Bits segment benefited from a robust Canadian drilling season with another strong quarter, and we are taking steps to improve the long-term profitability of our Tubular Technology segment, which has been challenged by weak U.S. Gulf of Mexico activity. At Tubular Technology, we merged our XL Systems group into this segment, which should result in reduced overhead expenses; and, shortly after the end of the quarter, we exited our lower- margin, commodity coupling business through the sale of our Texas Arai division.
"In the second quarter, we expect to be negatively affected by the seasonal decline caused by the winter breakup in Canada. This should cause our second quarter earnings from continuing operations to be slightly down compared to the first quarter. In the second half of the year, our Drilling Products segment should benefit from the increased backlog caused by a gradual return of U.S. land drilling customers. As such, we have raised our full year earnings per share estimates, excluding charges, to a range of $0.38 to $0.42."
Most Popular Articles