Smith International has reported second quarter income from continuing operations of $32.1 million, or $0.15 per diluted share, after excluding a $7.7 million after-tax charge related to severance and other cost reduction efforts. Reported results for the second quarter of 2009 totaled $24.4 million, or $0.11 cents per diluted share, on revenues of $1.94 billion. On a comparative basis, second quarter 2008 earnings from continuing operations totaled $183.3 million on revenues of $2.49 billion, while first quarter 2009 earnings from continuing operations, net of charges, totaled $114.5 million on revenues of $2.41 billion.
The second quarter financial performance reflects reductions in North American exploration and production spending attributable to unfavorable natural gas fundamentals. Moreover, lower activity levels have contributed to excess industry capacity in the U.S. land drilling market -- leading to higher discounting in a number of the Company's product and service offerings. These factors, combined with the seasonal drilling downturn in Canada, had a significant impact on the quarter's results.
Consolidated revenues declined 19 percent from the March 2009 period, which compares to a 25 percent reduction in global drilling activity. The revenue decrease was concentrated in the Western Hemisphere market driven by a 31 percent reduction in the U.S. land rig count and, to a lesser extent, the annual break-up in Canada and offshore activity declines in Mexico. Eastern Hemisphere revenues fell five percent from the March period influenced by the timing of offshore projects in the West Africa region. On year-on-year basis, after adjusting for the retained W-H Energy operations, pro forma revenues declined 30 percent versus a 36 percent decline in comparable activity levels.
Commenting on the results, Chief Executive Officer, John Yearwood stated, "Our second quarter results reflect the unprecedented collapse in North American drilling activity which has led to lower volumes and a very competitive pricing environment. While we believe its unlikely that natural gas fundamentals will support U.S. activity growth in the back half of 2009, we do believe pricing in our oilfield-related product lines has stabilized. During the quarter we spent a considerable amount of effort right-sizing our U.S. operations while simultaneously expanding our business base in selected markets by offering new technology and providing superior drilling performance. I am very pleased with the overwhelming customer acceptance of our proprietary i-DRILL drilling optimization offering, the start of Pathfinder operations in three new countries and the improved drilling performance from our recently commercialized ONYX drill bit cutter technology."
Margaret Dorman, Chief Financial Officer, added, "The North American business mix combined with higher debt costs contributed to the sequential decline in profitability levels. Margins in our oilfield-related operations slipped 370 basis points on a sequential quarter basis, translating into decremental margins of 34 percent. While profitability levels in our Eastern Hemisphere operations held up relatively well last quarter, supported by the performance of the M-I SWACO operations -- lower volumes and weak pricing in the U.S. market influenced the overall margins. Our working capital performance showed improvement in the second quarter, contributing to just over $300 million of free cash generation. Excess cash was used to repay outstanding borrowings reducing our leverage ratio to 28.9 percent at June 30, 2009."
M-I SWACO segment revenues were $1.01 billion for the second quarter of 2009, a 13 percent decrease on a sequential basis and 21 percent below the prior year period. Just over half of the sequential quarter revenue reduction was reported in the segment's North American operations -- influenced by lower U.S. land-based activity, a 24 percent decline in U.S. offshore business levels and the seasonal downturn in Canadian drilling. Revenues in markets outside North America fell eight percent below the March quarter impacted by the timing of offshore projects in West Africa and the decline in offshore drilling activity in Mexico.
Smith Oilfield segment revenues were $520.5 million for the three months ended June 30, 2009 -- 24 percent lower on a sequential quarter basis and, due to the addition of the W-H operations, 12 percent below the amounts reported in the prior year quarter. The reported sequential period revenue decrease was concentrated in North America -- as the lower number of land-based drilling programs impacted demand for tubular products as well as high-margin drill bits, directional services and other drilling-related product offerings. Additionally, increased competitive pricing pressure in the U.S. market impacted the sequential revenue comparison. Smith Oilfield revenues outside North America were seven percent below the March quarter driven by lower sales volumes in the Middle East and West African markets.
The Distribution segment's second quarter revenues were $410.8 million, 28 percent below the March 2009 quarter and 33 percent lower on a year-on-year basis. Approximately two-thirds of the revenue decline from the prior period resulted from lower customer demand and, to a lesser extent, market pricing for line pipe in the U.S. market. The Distribution segment's reported decline in sales also reflects the effect of the Canadian spring break-up and the reduction in U.S. land-based drilling projects on maintenance, repair and operating ("MRO") product sales.
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