Smith International, Inc. announced record earnings of $183.3 million, or 91 cents per diluted share, for the second quarter of 2008. Profitability levels increased 20% when compared to the year-earlier period and were 5% higher on a sequential quarter basis.
Consolidated revenues for the second quarter of 2008 totaled $2.49 billion, as 10 percent sequential business growth in markets outside Canada was partially masked by the impact of the seasonal weakness in Canadian drilling. The sequential revenue improvement was concentrated in the United States and Europe/Africa, reflecting increased investment in exploration and production programs due to strong commodity prices. A significant portion of the sequential quarter profitability growth was provided by the Distribution operations, as higher Oilfield segment earnings associated with improved business levels in the United States and Europe/Africa was largely offset by reduced Canadian earnings. Excluding the impact of lower Canadian drilling activity, which resulted in the loss of high-margin product sales, Oilfield earnings grew nine percent on a sequential quarter basis.
Compared to the prior year quarter, Smith's consolidated revenues grew 18 percent. Increased customer spending outside North America, influenced by continued expansion in key drilling markets including the Former Soviet Union, the North Sea and Mexico, accounted for more than half of the year-on-year revenue growth. Non-North American business volumes were primarily driven by the performance of the Oilfield segment operations – which reported 23 percent year-on-year growth due to improved activity levels, new Latin American contract awards, and increased operator investment in the Europe/Africa offshore market. The consolidated revenue improvement was also impacted by higher U.S. land-based business activity, which increased 18% over the June 2007 period.
Chairman and CEO, Doug Rock stated, "We at Smith are encouraged by the improving market conditions for the second half of 2008. We're also pleased to see crude oil prices begin to moderate as the most immediate threat to drilling activity is demand destruction caused by high oil prices. Additionally, we look forward to the merger of W-H Energy Services and Smith International, Inc. during the current quarter. Our customers, employees and shareholders will all benefit from this combination."
M-I SWACO's second quarter revenues totaled $1.29 billion, five percent above the March 2008 quarter and 18 percent higher on a year-on-year basis. The sequential revenue growth was influenced by a significant increase in completion activity in the U.S. Gulf, the Norwegian sector of the North Sea and West Africa - which resulted in increased demand for completion fluid products. To a lesser extent, increased environmental equipment sales for the Europe/Africa region contributed to the sequential growth – reflecting demand for produced water treatment equipment in the North Sea market and fluid processing units for the FSU region. North American revenues were in-line with March 2008 levels as increased U.S. onshore fluid volumes were largely offset by reduced activity levels in Western Canada.
Smith Technologies reported revenues of $281.3 million, two percent higher on a sequential quarter basis and 13 percent above the June 2007 period. The unit's sequential results were impacted by the seasonal weakness in Canada, which resulted in reduced demand for three-cone and diamond product offerings. Higher sales of drill bits specifically developed for unconventional land-based drilling programs in the United States and increased market penetration in key Latin American markets more than offset the reduction in Canadian business volumes. To a lesser extent, increased Eastern Hemisphere export orders, improved drill bit pricing and heightened demand for turbine drilling motors contributed to the sequential revenue improvement.
Smith Services' revenues increased to $311.5 million in the second quarter of 2008, four percent above the March 2008 period and 11 percent above the year-ago level. The revenue increase over the first quarter of 2008 was primarily related to new contract awards for completion, fishing and remedial products and services outside North America – enabling Non-North American business volumes to expand eight percent on a sequential quarter basis. To a lesser extent, higher U.S. drilling activity has had a favorable impact on demand for the unit's premium product and service offerings, including tubular drill collars and casing exit technologies.
Wilson reported record revenues of $615.6 million, evidencing eight percent sequential and 23 percent year-on-year top-line growth. The improvement over the March 2008 quarter primarily reflects increased demand for line pipe and other operating supplies associated with unconventional drilling projects in the U.S. market. To a lesser extent, higher business volumes related to engineering and construction projects in the energy and downstream sector operations also contributed to the sequential revenue improvement. These factors were partially offset by the impact of the seasonal drilling slowdown in Canada - which impacted the level of drilling and completion activity and associated revenues.
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