Newpark Resources Reports 2004 Results
Newpark Resources, Inc. (NYSE: NR) reported net income for the year ended December 31, 2004 of $4.0 million, or $0.05 per common share including non-cash charges of $0.03 per common share, on revenue of $433.4 million. This compares to net income of $494,000 or $0.01 per common share, on revenue of $373.2 million in 2003. For the fourth quarter, Newpark reported net income of $526,000 or $0.01 per share, after the same $0.03 per share in non-cash items, on revenue of $113.7 million versus a net loss in 2003 of $2.9 million or $0.04 per share on revenue of $94.6 million. Segment operating income increased 35% for the year and 151% for the quarter, primarily driven by improvements in Newpark's Drilling Fluids and Mat Sales and Rental Business Units.
During the fourth quarter, Newpark recognized an asset impairment of $3.4 million and an $800,000 increase in its allowance for doubtful accounts due to new estimation methods adopted in the period. Excluding the impact of these non-cash items, Newpark would have reported net income of $0.08 per share and $0.04 per share for the year and the quarter respectively.
James D. Cole, Newpark's chairman and CEO said: "We believe the improved fourth quarter operating results mark the beginning of a trend that should be more evident in 2005. With approximately 50% of revenue generated from new markets, products and services, the pattern of revenue generation in 2004 evidences the progress of Newpark's diversification away from its historic Gulf Coast market. While working to implement this strategy, our efforts were complicated by a 35% decline in activity in that market. The company's earnings performance has suffered during the implementation of this initiative, during which time we have reshaped our ongoing Gulf Coast business to restore profitability at current activity levels. The introduction of new products and services has helped achieve the objective of diversifying the revenue and earnings base. We are growing our market share in our drilling fluids business and expanding into new markets in the mat sales and rental business. In addition, we have recently announced the introduction of a new, proprietary water treatment technology and its application to E&P waste streams in the Green River and Powder River basins. In short, we believe there are good opportunities for continued growth ahead for Newpark Resources."
Drilling Fluids Segment
Revenue from drilling fluids for the year totaled $272.9 million, up 27% from 2003, while contributing $21.8 million of operating income, equal to an 8.0% operating margin. This compares to $215.5 million of revenue, $12.0 million of operating income, and a 5.5% operating margin in the prior fiscal year. During the fourth quarter, drilling fluids revenue was $76.9 million compared to $56.9 million in the year-ago period. Segment operating income of $8.1 million equaled a 10.5% operating margin. This compared to $3.3 million of operating income in the 2003 period, equal to 5.7% of revenues.
Fourth quarter revenue was up 35% from the year-ago period, a combination of a 12% increase in rig activity and continued market share gains. Cole commented, "Most of the share gain came from over thirty new customer relationships developed during 2004. Newpark exited 2004 with a 20% share of rigs operated in those markets we serve, compared to 14% a year ago. In 2005, we expect to see these same trends continue, together with a 5% to 6% price increase. We expect to improve operating margins to about 12% for the full year compared to 8% in the year just ended."
Mat Sales and Mat Rentals
For the year ended December 31, 2004, revenue from mat operations was $96.0 million, generating $4.4 million in segment operating profit. This compares to $88.9 million of revenue in 2003, and $515,000 of operating profit. Fourth quarter operations showed a similar year-over-year improvement.
Cole commented: "Fourth quarter operating results improved principally as a result of cost reductions and improved oilfield rental pricing. We expect this improvement to continue in 2005 with our cost reduction program generating approximately $8 million in 2005 benefit. In addition, we expect to see a 25% gain in pricing in the oilfield rental portion of the business supported by a continuing reduction in industry capacity in that market, as well as expanded revenue and earnings from non-oilfield mat rentals and sales."
E&P Waste Services
Revenue during 2004 from E&P waste totaled $64.5 million, producing segment operating profits of $8.2 million. This compares to $68.8 million in 2003 revenue and $13.0 million in segment operating profit. The year-over- year revenue decline is a function of lower Gulf Coast waste volume due to lower rig activity and the unusual tropical weather in the third quarter. Earnings declined due to operating leverage on the lower volume, adverse changes in the mix of active rigs, and higher transportation costs during the period.
Fourth quarter revenue totaled $16.9 million, providing $2.5 million of segment earnings. This compares to $17.8 million in revenue during the same quarter of 2003 and $3.3 million in operating contribution. Volume in the fourth quarter rebounded sequentially from 701,000 reported in the storm- impacted third quarter, to 872,000 barrels in the final quarter of 2004.
Volume for the full year, at 3.2 million barrels, declined 10% compared to 2003, principally the result of lower average rig activity during the year and adverse third quarter tropical weather. Average revenue per barrel declined 5.6% on changes in mix driven by the decline in offshore rig activity. Average pricing per barrel was $11.82 compared to $12.52 a year ago as a result of the change in mix.
"As we enter 2005, and for the first time since 2001," Cole indicated, "activity in the offshore and inland waters market has begun to improve. These have historically been the strongest markets for our waste operations, and we anticipate a 15% increase in 2005 volume if current activity levels are sustained."
Newpark recently announced the formation of Newpark Environmental Water Solutions, LLC and the first application of a newly licensed proprietary water treatment technology to improve the throughput capacity of the Company's Jonah-Pinedale oilfield waste disposal site in Wyoming, a very active North American natural gas trend. In addition, the Company has received a contract award for a treatment facility near Gillette, Wyoming for a major independent operator in the coalbed methane market. "We believe that the application of this proprietary technology to the waste water problems within the oil and gas industry could be a major new business for Newpark," said Cole.
Balance Sheet Data
Newpark ended the year with $7.0 million in cash and borrowings of $39.6 million outstanding under its bank credit facility. Working capital increased by $12.1 million during the year, principally due to the need to carry increased levels of barite inventory in support of growth in the drilling fluids business. Accounts receivable growth was negligible, with a 16 day reduction in the collection cycle helping reduce working capital needs during the year.
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- Newpark Resources Announces President of Mats and Integrated Services (Jun 03)
- Newpark Announces New $225 Million Credit Facility (Dec 21)