"Apart from our Sonatrach project cost increase, we had a strong first quarter, reflecting the continuing strength of our Energy Systems businesses," said Joseph H. Netherland, Chairman, President and Chief Executive Officer. "While we are very disappointed with our performance on the Sonatrach project, our subsea systems business, as well as our surface and fluid control businesses, showed solid results from increased oilfield activity. Subsea revenue improved more than $100 million over the prior-year quarter, substantiating our strong leadership position in deepwater developments. Additionally, after the quarter's close, we received $320 million in subsea orders for the ChevronTexaco Agbami project and the Woodside Perseus-over- Goodwyn project."
Review of Operations - First Quarter 2005
Revenue for Energy Systems, comprising Energy Production Systems and Energy Processing Systems, was $507.1 million in the first quarter of 2005, up 26 percent from $402.8 million in the first quarter of 2004. Energy Systems' operating profit for the first quarter was $5.8 million and includes a $27 million charge for anticipated losses on the Sonatrach project. Compared to the same period in 2004, Energy Systems' operating profit was $25.5 million.
Energy Systems' inbound orders were $437.6 million for the first quarter of 2005, up $62.5 million compared to the first quarter of 2004. Energy Systems' total backlog at the end of the first quarter was $1.26 billion compared to $985 million at the end of the first quarter of 2004.
Energy Production Systems' first quarter revenue of $397.8 million increased 34 percent over the prior-year quarter. The quarter-over-quarter increase was due mainly to higher subsea systems revenue, up more than 50 percent from the prior-year quarter. Segment operating loss of $1.2 million includes the $27 million loss provision for the Sonatrach project. Partially offsetting the loss from the Sonatrach project were higher operating profits in the surface, subsea and separation systems businesses.
Energy Production Systems' inbound orders of $308.6 million for the first quarter were 18 percent above the prior-year quarter. Energy Production Systems' backlog of $1.1 billion is $288.3 million higher than the prior-year first quarter on the strength of subsea orders. Subsea backlog of almost $1 billion is 68 percent above the first quarter of 2004. This inbound and backlog does not include the recently announced ChevronTexaco Agbami subsea order for $276 million or the Woodside Energy Perseus-over-Goodwyn (PoG) subsea order for $44 million.
Energy Processing Systems' first quarter revenue of $110.3 million was essentially level with the prior-year quarter. Increased demand for WECO®/Chiksan® products was offset mainly by lower sales in measurement systems as orders were received late in the quarter. Operating profit of $7.0 million improved $2.3 million, a 49 percent increase compared to the first quarter of 2004, due mainly to strong demand for WECO®/Chiksan® products.
Energy Processing Systems' inbound orders were $129.4 million for the first quarter, up 9 percent from the prior-year quarter, due mainly to strong demand for WECO®/Chiksan® products. Energy Processing Systems' backlog of $123.9 million is $22.5 million below the prior-year quarter due to the timing of material handling projects for bulk conveying and delayed loading systems orders.
FoodTech's first quarter revenue of $111.9 million was 8 percent higher compared with the first quarter of 2004. The increase resulted mainly from strong sales of freezing and cooking systems in European and Asian markets. Revenue in the citrus business was lower due to the impact of the four 2004 Florida hurricanes on the citrus crop. FoodTech's operating profit of $3.4 million was $1.2 million below the prior-year quarter. Improvements in the freezing and cooking systems' operating profits from improved margins and higher volumes were more than offset by operating profit decline in the citrus business. Inbound of $134.5 million was $19.4 million below the prior-year quarter due primarily to lower orders for tomato processing equipment. Backlog of $165.3 million is down slightly from the prior-year quarter.
Airport Systems' first quarter revenue of $64.7 million was 11 percent higher compared with the first quarter of 2004. Revenue improved over the prior-year quarter due to stronger sales of Jetway® passenger boarding bridge equipment to airport authorities and increased sales from the airport service business due to new project awards. Operating profit of $4.1 million included a $2.7 million pre-tax gain recorded on the sale of excess land. Higher steel costs impacted the profitability of the Jetway and ground support businesses. Inbound orders were $56.5 million in the first quarter of 2005, up slightly from 2004. Lower inbound in the Jetway business was offset by higher order inbound for automated guided vehicles and, to a lesser extent, ground support equipment.
Corporate expense in the first quarter of 2005 was $7.6 million, $1.2 million above the prior-year period due in large part to audit related expenses for Sarbanes-Oxley. Other expense, net, of $7.1 million increased $2.3 million compared with the prior-year period due to the unfavorable impact of foreign currency, higher LIFO and higher incentive compensation expense.
Net interest expense in the first quarter of 2005 was $1.2 million, down from $2.0 million in the first quarter of 2004, due primarily to lower average debt.
Debt, less cash, at the end of the first quarter of 2005 was $94.0 million, up from $39 million at the end of the fourth quarter of 2004 mainly due to the timing of working capital requirements and the repurchase of 170,700 shares of FMC Technologies common stock. In February the Company announced plans to begin the repurchase of outstanding common stock. The Company has been authorized by its Board of Directors to repurchase up to two million shares.
Summary and Outlook
FMC Technologies reported break-even diluted earnings per share for the first quarter 2005. Earnings per share included a negative $0.24 impact from the Sonatrach project. Diluted earnings per share in the prior-year quarter were $0.20. Energy Systems' revenue grew 26 percent over the prior-year quarter on the strength of the subsea business. Backlog remains strong at $1.5 billion on the strength of subsea, and substantial orders were received early in the second quarter.
FMC Technologies previously estimated diluted earnings per share for full- year 2005 in the range of $1.30 to $1.50. The Company announced a charge of $0.24 in the first quarter for estimated losses on its Sonatrach project. Including Sonatrach project losses, the Company expects growth over 2004 in its Energy Systems businesses. The FoodTech and Airport Systems segments are projected to perform at a level equal to or slightly higher than the prior- year results. Reflecting the $0.24 charge for Sonatrach project losses taken in the first quarter, the Company's full-year 2005 diluted earnings per share estimate is in the range of $1.06 to $1.26.
The Company is evaluating the repatriation of foreign earnings consistent with the Homeland Investment Provision of the JOBS Act. A plan for doing so has not been finalized. The Company's estimate for full-year 2005 diluted earnings per share does not include any income tax expense associated with repatriating foreign earnings under this act.
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