Second quarter revenues increased to approximately $1.1 billion, driven by increased customer spending in key geographic markets. Excluding the impact of the charge discussed above, results were 60 percent above the $29.9 million, or 30 cents per share, posted in the prior year period. Sequential earnings, net of the charge, grew three cents per share despite the impact of the annual spring break-up in Canada which resulted in the loss of higher-margin product revenues.
Several factors influenced the sequential results, including improved financial performance from the Distribution segment which contributed two cents of the period-to-period increase.
Consolidated revenues grew 21 percent over the prior year period and five percent on a sequential quarter basis. Increased customer spending in the U.S. land-based market accounted for over half of the year-over-year revenue growth. Business volumes in areas outside the United States grew 18 percent influenced by new contract awards and increased market penetration, primarily in Europe/Africa. On a sequential quarter basis, the Company generated solid revenue growth despite the effect of the annual spring break-up. Excluding the impact of the Canadian operations, revenues grew 10 percent and significantly outpaced the four percent improvement in comparable drilling activity. The majority of the sequential revenue growth was generated in the Eastern Hemisphere, including the Former Soviet Union ("FSU"), the North Sea and certain Middle East markets, associated with increased spending by major exploration and production companies.
M-I SWACO's second quarter revenues totaled $550.3 million, a 20 percent increase over the prior year period and a six percent improvement from the first quarter of 2004. The higher year-over-year revenue volumes were driven by an increase in the number of U.S. land-based drilling programs and new contract awards in Europe/Africa, including the FSU and North Sea, and certain Middle East markets. The sequential revenue improvement was reported in the Eastern Hemisphere reflecting new contract awards and increased investment by major exploration and production companies. Western Hemisphere revenues were comparable with the first quarter of 2004 influenced by the seasonal decline in Canada and the lower level of drilling activity in the U.S. deepwater market, which impacted sales of higher-margin synthetic fluid products.
Smith Technologies' second quarter revenues totaled $121.2 million, 26 percent above the amounts reported in the prior year period and three percent lower on a sequential basis. Although the year-over-year revenue improvement was largely driven by the performance of the North American operations, which grew at more than twice the rate of the corresponding activity increase, revenues in markets outside North America also posted favorable comparisons. The revenue growth in the U.S. and Canada was influenced by increased land-based drilling activity, new product introductions and, to a lesser extent, pricing. The sequential revenue comparison was impacted by the seasonal decline in Canada and the inclusion of several large international export orders in the March 2004 quarter. Excluding export sales, revenues were slightly above the first quarter of 2004 as increased demand for recently introduced diamond drill bits, including the enhanced X-TEND(R) series and bit designs featuring the HOT(TM) cutter, more than offset the impact of lower sales of three-cone drill bits in Canada.
Smith Services' second quarter revenues totaled $116.4 million, an increase of 14 percent over the prior year period and a five percent improvement from the first quarter of 2004. Revenues grew year-over-year as higher North American activity levels and the impact of new product introductions in Europe/Africa more than offset the impact of lower U.S. drill pipe sales. Over two-thirds of the revenue improvement from the prior year period was reported in the United States reflecting increased demand for remedial products and services. On a sequential quarter basis, the revenue growth was largely reported in the United States and Europe/Africa, including the North Sea and FSU, primarily attributable to strong demand for remedial product and service lines.
Distribution revenues were $276.6 million, 27 percent higher on a year-over-year basis and five percent above the March 2004 quarter. Wilson's energy operations accounted for the majority of the revenue growth over the prior year period driven by improved North American drilling and completion activity and increased tubular product sales. Industrial and downstream revenues grew 27 percent year-over-year reflecting the impact of new contract awards and increased customer spending in the refining, petrochemical and power generation markets. On a sequential quarter basis, the revenue improvement reflects increased sales of tubular products to customers in the energy sector.
Commenting on the results, Chairman and CEO, Doug Rock stated, "Smith's second quarter results show our steady and continued improvement during the early stages of this oilfield service business cycle. Solid worldwide economic growth, along with higher oil and gas depletion rates, coupled with prior years' underinvestment in exploration and production all together portend a robust future for our industry. As a result, we're increasing our fiscal 2004 guidance to $1.90 to $2.00 per share on an operating basis -- or $1.70 to $1.80 per share inclusive of the second quarter litigation charge."
Loren Carroll, Executive Vice President, also noted that, "We're pleased with the results for the quarter influenced, in part, by a significant improvement in our U.S. Distribution operations. And, although we acquired approximately $54 million of our stock during the second quarter under an existing share repurchase program, the balance sheet remains strong -- evidenced by our current debt-to-total-capitalization of 24 percent."
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