Cooper Cameron Sees Improvement in Earnings
Cooper Cameron Corporation (NYSE: CAM) reported net income of $28.6 million, or $0.53 per share, for the quarter ended March 31, 2005, exceeding the Company's earlier guidance of $0.35 to $0.40 per share and comparing favorably with net income of $17.3 million, or $0.31 per share, for the first quarter of 2004. Total revenues were $547.9 million for the quarter, up 18 percent from 2004's $462.5 million, while income before income taxes was $42.1 million, up 73 percent from $24.3 million a year ago.
Revenues, earnings post improvement over year-ago levels; orders up in all business lines
Cooper Cameron Chairman, President and Chief Executive Officer Sheldon R. Erikson noted that the Company's total revenues and income before income taxes were up significantly from the first quarter of 2004, and that the pace of market activity continued to drive new orders in the quarter.
"All three business segments had strong order intake and revenue growth compared with the first quarter of last year, and benefited from solid North American rig activity, as well as strong international markets," Erikson said. "Further, Cooper Cameron Valves' (CCV) integration efforts related to the fourth quarter 2004 acquisition of several valve manufacturing businesses are progressing as expected, and that process should be essentially completed by the end of the second quarter." He noted that while some of the year-over- year gains in orders at Cameron and CCV reflect acquisitions made during 2004, the Company still posted solid increases in orders exclusive of the acquisition impacts. Erikson also said that price increases implemented last year and early in the first quarter of this year offset, in most of the Company's businesses, the continuing impact of higher raw material costs on the Company's manufacturing operations.
Strong free cash flow generation continues
Erikson said that the Company generated approximately $41.5 million of free cash flow (net cash provided by operating activities less capital expenditures) during the first quarter. "This is a result of profitable operations and careful management of capital investment and working capital, and indicates that we are on track to repeat our solid cash generation performance of last year," he said. Erikson noted that the Company's free cash flow during 2004 was more than $140 million, helping fund several acquisitions and stock repurchases. "We place great emphasis on cash generation as a primary performance measure for our businesses, and we will continue to look for opportunities to redeploy cash in accretive acquisitions and on stock repurchases."
Cameron's year-over-year earnings gain reflects market activity
Cameron's revenues were down slightly from the fourth quarter, but up approximately ten percent from first quarter 2004. Erikson noted that strong markets in several of Cameron's businesses contributed to improved margins, generating a meaningful increase in earnings, although margins were negatively impacted by some low-margin orders acquired in the acquisition of Petreco. "We continue to work off some business in Petreco's backlog that carries relatively low margins," he said, "and we expect Cameron's profitability to improve steadily for the balance of the year."
Acquisition drives Cooper Cameron Valves (CCV) revenue gains
CCV's revenues were up both sequentially and year-over-year as a result of the fourth quarter acquisition of several valve manufacturing businesses, and margins were also higher in both comparisons. Erikson said the significant profitability improvement was a result of continued strength in both the distributed and engineered valve product lines and CCV's effective integration of the acquired businesses with the Company's existing operations.
Cooper Compression revenues up from prior year, margins decline
Cooper Compression's revenues were down sequentially, as is typical in each year's first quarter, but were about 11 percent higher than in the first quarter of 2004. Margins were lower than year-ago levels due to higher material costs that have not yet been offset by price increases announced during the quarter, Erikson noted. "However, orders in both the gas and air compression markets have been very strong, and we expect to see improvement in Compression's margins through the rest of 2005," he said.
Orders reach record levels, backlog increases again
Orders received during the first quarter of 2005 in all three business segments exceeded the levels achieved in the first quarter of 2004, as total orders reached $680 million, up more than 60 percent from the $420 million of a year ago. "While orders at CCV, and to a lesser extent at Cameron, were boosted by acquisitions made during 2004," Erikson said, "each of those divisions generated strong year-over-year gains in orders separate from the acquisition impacts. Cameron's order growth came without the benefit of any large subsea projects; CCV's $151 million in orders were the highest in its history; and Cooper Compression's orders were its highest in more than five years." He noted that Cameron continues to benefit from an active worldwide rig count and saw year-over-year increases in orders in the drilling, surface, subsea and aftermarket businesses.
The strong order flow drove another increase in the Company's backlog. The $1.13 billion total at March 31, 2005 was 13 percent higher than the year- end 2004 level of $1.00 billion, and was up more than ten percent from the $1.02 billion of a year ago.
Price increases implemented during first quarter
Erikson said that in January, Cooper Cameron implemented price increases ranging from eight to fifteen percent across essentially all product lines as part of the Company's continuing efforts to offset increases in the cost of certain raw materials used in manufacturing processes. "Between the price adjustments we made in early 2004 and these recent increases, we have been able to mitigate, for the most part, the impact that higher steel costs might otherwise have had on our profit margins," Erikson said. "While these costs appear to have stabilized, we continue to closely monitor manufacturing costs and will revise product pricing as needed."
Balance sheet reflects acquisitions, share buybacks
Cooper Cameron's total debt, net of cash and short-term investments, at March 31, 2005 was $157.9 million, down from $238.7 million at December 31, 2004, and the Company's net debt-to-capitalization ratio decreased to approximately 11.0 percent. Erikson noted that the Company repurchased 115,000 shares of its common stock during the quarter at an average price of approximately $54.88 per share, and continues to evaluate both acquisition opportunities and share repurchases as uses for cash.
Full-year earnings guidance raised
Erikson said that second quarter earnings are expected to be in the range
of $0.55 to $0.60 per share, reflecting continued strong market activity, and
that the Company now expects earnings per share for 2005 to be in the $2.45 to
$2.60 range, up from the earlier guidance of $2.20 to $2.35.
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