The year-over-year increase in quarterly earnings of 38% was due to increases in ROV, Subsea Projects, Subsea Products, and Inspection operating profits. Summary of Results (in thousands, except per share amounts) Three months ended Nine months ended September 30, June 30, September 30, 2005 2004 2005 2005 2004 Revenue $263,111 $192,862 $235,970 $709,818 $554,143 Gross Margin $49,334 $34,205 $40,567 $123,104 $92,708 Operating Income $28,335 $18,719 $20,660 $63,488 $44,507 Net Income $17,714 $12,846 $14,673 $42,979 $28,588 Diluted Earnings Per Share $0.66 $0.50 $0.55 $1.61 $1.12 Weighted Average Number of Diluted Shares 26,921 25,871 26,582 26,671 25,612
For the second quarter of 2005, Oceaneering reported revenue of $236.0 million and net income of $14.7 million, or $0.55 per share. The sequential increase in net income of 21% was attributable to improved operating income contributions from our ROV, Subsea Projects, and Subsea Products segments.
John Huff, Chairman and Chief Executive Officer, stated, "We achieved record net income results for the second consecutive quarter as market demand for our niche market subsea products and services continued to escalate. Year to date we have already earned more net income than in all of 2004. We are on pace to realize 50% net income growth for the year 2005 over 2004. Furthermore, our sustainable business growth prospects for 2006 and beyond, driven by deepwater oil and gas exploration and development activity, look very promising.
"When compared to the second quarter of this year, Subsea Products operating income improved due to the profit contribution of the GrayLoc acquisition made at the end of the second quarter, and a reduction in losses we have been incurring at our umbilical plant in Panama City, FL. ROV profitability rose primarily due to an increase in our fleet utilization rate to 88%, up from 81% in the second quarter. Subsea Projects results were higher due to an escalation in deepwater IMR projects and inspection work to assess damage caused by Hurricane Katrina.
"During the quarter we took several actions to position Oceaneering to achieve improved future financial results. We announced $58 million of capital spending projects. Of this amount, approximately $30 million is for our Subsea Products business and $23 million for expansion of our ROV fleet. Respectively, these two segments represent the fastest growing and the most profitable lines of business in which we can find attractive investment opportunities. The remaining $5 million will be invested in a saturation diving system to increase our participation in the pipeline and platform repairs of damage caused by the three major Gulf of Mexico hurricanes in the past 12 months.
"We secured a one-year contract for the use of the MSV Ocean Intervention and announced $55 million of umbilical contracts to be built at our Brazil and U.S. manufacturing plants. Total new orders for our Subsea Products segment were approximately $134 million and our products backlog at the end of the quarter was $181 million.
"Based upon our earnings performance in the first nine months of this year we are increasing our EPS guidance for 2005 to a range of $2.25 to $2.30. For the fourth quarter, we are anticipating profit growth in our Subsea Products segment to be offset somewhat by normal winter season declines in our ROV and Inspection operations, along with the possibility of minimal production throughput at the Medusa Spar.
"Since our last earnings release, the outlook for our oilfield products and services has improved and the expected market demand for our non-oilfield business has declined somewhat. We now believe 2006 EPS will be in the record range of $2.70 to $2.85, based on an estimated 27.5 million shares outstanding. The 2006 EPS growth is anticipated to be driven by profit improvements from our oilfield Subsea Products, particularly our umbilical manufacturing operation, current prospects for higher ROV pricing and a larger fleet size, and an expected increased level of Subsea Projects profitability due to Hurricanes Katrina and Rita repair work."
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