Newpark Resources Reports Increased 2Q05 Earnings on 35% Revenue Growth
Newpark Resources, Inc. (NYSE: NR) announced that it earned $4.8 million, or $0.06 per share, during the quarter ended June 30, 2005, compared to net income of $1.3 million, or $0.02 per share, for the same quarter of 2004. Revenue increased 35% to $141.5 million in the 2005 quarter from $104.6 million in last year's quarter.
For the six months ended June 30, 2005, the Company reported net income of $9.7 million, equal to $0.12 per share, which compares to earnings of $2.8 million, or $0.03 per share, in the first six months of 2004. Revenue totaled $270.5 million in the first six months of the current year, an increase of 29% from $208.9 million reported in the same period of 2004.
Jim Cole, Newpark's CEO commented, "Newpark Drilling Fluids is continuing to gain momentum in the marketplace as it penetrates the market, and this is translating into improved earnings and margins for the unit."
The number of rigs serviced by Newpark in the U.S. market during the second quarter of 2005 rose 32% to 198 compared to 150 in the same quarter of 2004. Year-to-date, the average number of rigs serviced by the unit increased 36% to 192, compared to 141 in the first six months of 2004. Comparable market activity for both the quarter and year-to-date, as measured by the rig count in the markets served by the company, has increased 13%. Newpark's share of that market rose from 16% at mid-year 2004 to 20% at the recent quarter end.
Drilling Fluids' contribution to second quarter 2005 operating income rose by $7.2 million to $9.7 million, compared to $2.5 million in the same quarter of 2004. Operating margin for the segment improved to 10% in the 2005 quarter from 4% a year ago.
"Operating margins were negatively impacted by over 200 basis points by an increase in barite cost in the current period," Cole stated. "But we believe that price increases and reductions in barite cost will improve margins in the second half of the year."
Revenue for the quarter increased to $96.6 million, up 65% from $58.4 million in the year-ago quarter.
For the six-months-to-date, the contribution of the Drilling Fluids segment to operating income amounted to $16.4 million, compared to $8.8 million in the same period of 2004. Current period operating margins increased to 9% compared to 7% in the 2004 period. Revenue for the period totaled $178.3 million, up 43% from $124.6 million in 2004.
Mat Sales, Rentals and Integrated Services
The matting segment's contribution to operating income for the first half of 2005 totaled $8.8 million, compared to $3.1 million in the same period of 2004, reflecting improvements affecting key product lines within the segment. First-half revenue increased to $61.0 million from $52.1 million a year ago.
The segment's contribution to operating income in the second quarter totaled $3.0 million, compared to $3.5 million at the peak of 2004's operations. Revenue in the 2005 second quarter, at $29.0 million, was $2.2 million below the $31.2 million reported in the same period of 2004.
Gulf coast oilfield mat rental volume in the second quarter declined on slower than usual turnover of rig sites installed in the first quarter. Non-oilfield rentals declined due to seasonal factors in the electric power industry and delays in a major project.
Cole commented: "We believe that the third quarter volume will benefit from the next wave of rig moves as current projects are completed, and we expect to see increased non-oilfield rentals in the fourth quarter from the resumption of electric utility projects. In addition, during the remainder of the year we expect to realize the final $2 million benefit from the company's cost reduction program."
E&P Waste Disposal
U.S. Gulf Coast market revenue from waste disposal increased 9% in the first six months of 2005 to $24.8 million on increased revenue per barrel. Contribution to profit increased 25% to $3.5 million from $2.8 million in 2004. During the second quarter, Gulf Coast revenues increased 15% to $12.8 million, driven by 15% higher average pricing. Operating contribution improved to $2.2 million, or a 17% margin, compared to 9% a year ago. Revenue and operating contribution from non-Gulf Coast markets declined in both the year-to-date and second quarter comparisons.
Commenting on E&P Waste Disposal, Cole said: "We expect that the improving trend in the U.S. Gulf Coast market will continue in the second half of the year, driven by recent activity increases in the inland waters market, which, due to tight environmental regulation, generates the largest volume of waste per rig of all the markets serviced by the company. Meanwhile, we have begun to reallocate resources and management focus, principally away from our non-Gulf Coast operations, to support development of the new water treatment business. Most of the decline in operating contribution outside the Gulf Coast reflects the start-up costs of over $500,000 to date in 2005 borne by those operations."
Water Processing Technology
Over the past year, Newpark reallocated resources to the development of new market opportunities employing a unique new process technology.
"We are very much encouraged by the enthusiasm we have seen in the marketplace and the results achieved thus far in the field," said Cole. "In the first U.S. application of the technology, Newpark began processing water associated with natural gas production in the Jonah and Pinedale fields at its Boulder, Wyoming, facility. While still in the start-up and testing phase of our operating plan, we are producing water meeting the discharge requirements of our permit, and we expect to begin commercial operation very soon." He continued, "Construction is progressing on the second plant near Gillette, Wyoming, and that facility is expected to be complete late in the third quarter. Our final objective for the year is to have a test unit in operation in the Canadian oil sands market in the fourth quarter in order to begin a demonstration of the capabilities of the Armel Activator technology in that important and growing market."
Balance Sheet Data
"In a period of substantial revenue growth and establishment of the new water technology, we've funded working capital and capital additions principally from cash flow. Longer-term we are still committed to work toward a 30% debt to total capital target," Cole indicated. "But we don't believe that will be the priority for the remainder of 2005, given the market opportunity that we see ahead of us."
Newpark ended the quarter with debt representing 37% of long term capital, substantially unchanged from year-end. At June 30th, borrowings under the Company's revolving bank credit facility totaled $31.0 million, with $8.1 million in letters of credit issued and $22.7 million of the facility unused.
Capital expenditures in the second quarter of $9.6 million included
$5.4 million in the drilling fluids unit which were accelerated to meet the
sharply increased level of awarded work and $2.9 million in the matting
segment, principally to maintain current capacity. As a result of the April
acquisition of the DuraBase(TM) composite mat manufacturing facility,
property, plant and equipment increased by $15.6 million, principally a
non-cash addition. Depreciation and amortization in the quarter increased to
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