On a sequential basis, second quarter revenue of $142.1 million increased 25%, operating income of $36.2 million was up 10%, and net income of $25.0 million was up 10%. Compared to the second quarter of 2005, revenue increased 55%, operating income increased 45%, and net income increased 45%.
“The strong second quarter results reflect the growing demand for our products and services in worldwide markets,” said Chris Seaver, Hydril’s president and CEO. “As a result of our continuing strong cash flows from operations we have committed to expand our manufacturing capabilities to meet our customers’ needs and return value to our shareholders through share repurchases, which we began in the second quarter with purchases of $25 million.”
Premium Connection Segment Sequentially, second quarter revenue for Hydril’s premium connection segment increased 22% to $89.4 million, while operating income increased 4% to $28.6 million, and operating margin decreased to 32% from 37%. The majority of the increase in revenue resulted from our successful efforts in the international markets to supply a larger percentage of orders with pipe in addition to threaded connections. As a result, the increase in low margin pass-through pipe reduced the segment's operating margin for the quarter.
Pressure Control Segment Second quarter revenue for the pressure control segment increased 30% sequentially to $52.7 million and operating income increased 31% to $13.6 million. Capital equipment revenue increased 45% sequentially to $28.5 million and aftermarket revenue increased 16% to $24.2 million. The increase in capital equipment revenue was primarily the result of progress made on offshore blowout prevention system projects and strong blowout preventer equipment shipments. Segment operating margin for the second quarter was 26%, flat with the first quarter, due to the increase in lower-margin capital equipment revenue.
The capital equipment backlog was $266 million at June 30, 2006, up 14% from $233 million at March 31, 2006, and up from $47 million at June 30, 2005.
Market Indicators Hydril’s principal business drivers are: (1) the U.S. rig count for rigs drilling at targets deeper than 15,000 feet, (2) the number of Gulf of Mexico rigs under contract, (3) the international rig count, (4) the worldwide offshore rigs under contract, and (5) the total U.S. rig count.
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