Cameron: Q3 Net Income Up by 82%
Cameron reported net income of $89.3 million, or $0.78 per diluted share, for the quarter ended September 30, 2006, compared with net income of $49.2 million, or $0.43 per diluted share, for the third quarter of 2005. (Per share data for the prior period has been revised to reflect a 2-for-1 stock split effective December 15, 2005.) The third quarter 2006 results include after-tax charges of approximately $2.3 million, or $0.02 per diluted share, related to the integration of the Dresser acquisition. Excluding the charges, the Company's earnings were $0.80 per diluted share.
Total revenues were $978.8 million for the quarter, up 54 percent from 2005's $636.6 million, while income before income taxes was $140.5 million, up 92 percent from the $73.0 million of a year ago. Cameron Chairman, President and Chief Executive Officer Sheldon R. Erikson noted that in the first nine months of 2006, the Company has already surpassed 2005's full-year record levels of revenues, earnings and orders, and established another record high in its backlog. "While demand for Cameron's products and services remains healthy across all of our business lines, we are mindful of the potential impacts from any moderation in U.S. rig count as a result of changing natural gas prices," Erikson said. "We have seen occasional pauses in order activity or demand on a seasonal or regional basis in certain markets, but not yet in areas that make up a significant part of our business. Meanwhile, as we approach the completion of our integration of the Dresser Valve acquisition, our primary challenge continues to be profitable execution of the record orders booked in the past several quarters."
Orders increase 42 percent for the quarter, 44 percent year-to-date; backlog at new high
Orders received during the third quarter of 2006 were similar to the second quarter levels and totaled $1,263.4 million, up 42 percent from the $888.8 million of a year ago. Erikson noted that the Company's total orders for the first nine months of the year, at $3.86 billion, are 44 percent above 2005's $2.68 billion for the same period. "Total orders increased slightly from second quarter to third quarter, primarily on the strength of continued bookings in Drilling & Production Systems' (DPS) drilling business," Erikson said. "We have booked more than $1 billion in orders this year for blowout preventers and related equipment, with most of that slated to be delivered in 2007 and beyond." Erikson noted that while orders in both the Valves & Measurement (V&M) group and Compression Systems division were down modestly from the second quarter, each was up from the year-ago levels, and the Company's total orders exceeded revenues for the eighth consecutive quarter.
At September 30, 2006, the Company's backlog totaled $3.39 billion, up nine percent from the $3.10 billion level at the end of the second quarter, and up 82 percent from the year-ago level of $1.86 billion.
Dresser integration to be essentially complete by year-end, costs well below initial estimates
In early 2006, the Company expected to recognize approximately $55 million of charges during the year in relation to the integration of the Dresser acquisition, including approximately $36 million of cash expenses. The 2006 pre-tax charges are now expected to approximate $29 million, or $0.15 per diluted share, of which approximately $18 million will be cash. Erikson said the integration process will be essentially complete by year-end. "In each location where we expected to incur costs associated with the integration efforts, the actual expenses have proven to be less than our original expectations," he said. "The V&M organization has done a good job of executing the acquisition plan on a timely basis and well within the earlier cost expectations. We have seen significant benefits from the acquired operations well ahead of our original forecasts, and we expect the profitability of the combined V&M business for the year, excluding restructuring costs, to match or exceed the 19 percent EBITDA (earnings before interest, taxes, depreciation and amortization) level achieved last year."
Cash flow generation supports capital spending, share repurchase; balance sheet solid
Erikson said that Cameron's cash flow from operations totaled $210.2 million through the first nine months of 2006, compared with $283.8 million for the same period of 2005. "Year-to-date capital expenditures totaled $108.9 million, and we continue to expect that capital spending for the full year will be about $175 to $185 million, in concert with our productivity and efficiency improvement targets," he noted. "This will include approximately $10 million to be spent this year related to our new subsea facility in Malaysia, which should be in operation in the second half of 2007. We have also spent $265.9 million this year in repurchasing more than 5.9 million shares of our common stock, including approximately $190 million of repurchases in association with the convertible debt offering in the second quarter." Erikson said the Company repurchased 631,100 shares during the third quarter at an average price of $44.71 per share.
At September 30, 2006, Cameron's total debt, net of cash and short-term investments, was $240.6 million, down from $287.7 million at June 30, 2006, and the Company's net debt-to-capitalization ratio was approximately 12.7 percent. The Company's total debt, net of cash and short-term investments, was $88.9 million at December 31, 2005, and net debt-to-capitalization at that time was approximately 5.3 percent.
Fourth quarter earnings to be up from third quarter levels
"We currently expect Cameron's fourth quarter earnings to be approximately $0.80 to $0.85 per share, including charges of approximately $0.03 per share associated with the integration of the Dresser acquisition," Erikson said. "That should lead to full-year earnings of approximately $2.69 to $2.74 per share, including charges of approximately $0.15 per share related to the integration of the Dresser acquisition and a foreign currency gain of $0.06 per share that was recognized in the second quarter."
Erikson said that based on the Company's significant backlog and current expectations for industry activity, he anticipates that Cameron will once again achieve earnings and cash flow growth during 2007; he noted that the Company expects to provide a forecast of results once its budgeting and planning process is completed, shortly after the first of the year.
Cameron is a leading provider of flow equipment products, systems and services to worldwide oil, gas and process industries.
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