Smith International has announced third quarter income from continuing operations of $14.8 million, or $0.07 per diluted share, excluding $7.8 million of after-tax charges related to employee severance. Reported net income in the third quarter of 2009 totaled $7.0 million, or $0.03 cents per diluted share, on revenue of $1.88 billion. In the comparable prior-year period, earnings from continuing operations, net of charges, were $211.9 million on revenue of $2.85 billion, while second quarter 2009 earnings from continuing operations, net of charges, were $32.1 million on revenue of $1.94 billion.
The Company's third quarter results were primarily influenced by unfavorable economic fundamentals in the North American natural gas market that contributed to continued pricing pressure within the U.S. operations of the Distribution and Smith Oilfield segments. Line pipe, drilling-related tubular offerings, as well as fishing and remedial services were particularly affected during the quarter. The modest seasonal recovery of drilling activity in Canada, sequential quarter revenue growth in Latin America and the solid performance of M-I SWACO were not sufficient to mitigate the revenue and margin deterioration experienced during the third quarter of 2009.
Consolidated revenue declined $65.3 million, or three percent, from the second quarter of 2009. Approximately 90 percent of the sequential revenue decline was concentrated in the United States influenced in large part by lower pricing, decreased customer spending and significantly reduced offshore activity. Outside the U.S. market, revenue levels were essentially flat as compared to the June 2009 quarter, with the impact of lower offshore drilling activity levels in the Eastern Hemisphere partially offset by the seasonal improvement in Canadian drilling following the spring breakup.
Commenting on the results, Chief Executive Officer, John Yearwood stated, "Our operating results for the third quarter reflected a challenging U.S. environment but displayed signs of stabilization towards the end of the quarter. M-I SWACO continued its remarkable success in deepwater contract awards, winning approximately 75 percent of the total fluids contract values awarded over the first three quarters of 2009. Due to strong customer demand and excellent drilling results, our PathFinder business continued to execute on its planned international expansion. Directional drilling, measurement-while-drilling and logging-while-drilling service revenue grew at a double digit percentage, exceeding the growth rate of the U.S. non-vertical rig count.
"We continued our actions during the past quarter to control costs and improve longer-term profitability, including personnel reductions of five percent in the United States, increased focus on improving supply chain and manufacturing efficiencies, and expansion of our business outside of North America. Moreover, we kept our manufacturing facilities operating below full capacity in line with our inventory reduction goals. We believe all of these actions will benefit our financial performance in 2010 and beyond.
"We anticipate a more favorable industry environment during 2010 with increased activity as compared to current levels. We expect M-I SWACO revenue to grow, both domestically and internationally, driven by an increase in deepwater rigs and commercialization of new technologies. The Smith Oilfield segment should benefit as PathFinder continues to gain ground, with expected higher growth rates than what we achieved during the third quarter of 2009. The success of our Drilling Optimization offering should help us pull through incremental revenue for the other drilling-related business lines. Distribution's revenue performance in 2010 will depend on demand for infrastructure and economic recovery in the United States. Even at current activity levels, we anticipate significant improvement in our Distribution segment results starting next year."
William Restrepo, Chief Financial Officer, added, "The weak U.S. market continued to drive sequential declines in operating income. Our oilfield-related margins for the quarter fell sequentially by 100 basis points, resulting in decremental margins of 55 percent. While the profitability of our M-I SWACO operations provided stability to our operating income, unfavorable mix and falling prices in the United States negatively impacted our overall oilfield-related margins. Within the Distribution segment, operating income was influenced by the bulk line pipe activity, which accounted for approximately 10 percent of the segment’s revenue, but 65 percent of the operating loss during the current quarter. Our sustained efforts to reduce working capital contributed approximately $130 million to free cash generation, mainly through consumption of inventory. A portion of our excess cash was used to repay $84 million in outstanding debt, reducing our leverage ratio to 28.1 percent at the end of the quarter and our net leverage ratio to 25.6 percent. Our net debt as of September 30, 2009 was $2.1 billion."
Most Popular Articles
From the Career Center
Jobs that may interest you