Oceaneering Sets Q1 Earnings Record
Oceaneering International, Inc. on Tuesday reported record first quarter earnings for the period ended March 31, 2007. On revenue of $344 million, Oceaneering generated net income of $33.2 million, or $0.60 per share. This quarter's results included, in Subsea Projects gross margin, a $3.5 million pre-tax gain on the sale of the Ocean Service, an ROV support vessel. During the corresponding period in 2006, Oceaneering reported revenue of $290 million and net income of $25.5 million, or $0.47 per share.
In addition to the gain on the sale of the Ocean Service, the year-over- year increase in quarterly earnings was principally due to increases in ROV and Subsea Products operating profits. These improvements reflect Oceaneering's business focus on deepwater and subsea completion activity.
Subsea Products operating income improved to a record level on the strength of an increase in sales of and improved margins on specialty subsea hardware. Sequentially lower quarterly ROV operating income resulted from a customary seasonal decline in days on hire and higher operating expenses, which included a substantial increase in recruiting and training costs to facilitate further expansion of our ROV fleet.
T. Jay Collins, President and Chief Executive Officer, stated, "We are very pleased with our record first quarter earnings. These were above our guidance range as our Subsea Products and Inspection businesses performed above expectations. We continue to believe we are on track to achieve record EPS for the fourth consecutive year, with annual EPS growth of about 20%.
"Subsea Products record operating income performance during the quarter was attributable to increased demand for our specialty products and a very favorable product mix for the quarter. We believe we are on track to earn $30 to $45 million more operating income from this segment than last year's record, as per our earnings guidance issued last quarter. At quarter-end our backlog was $361 million, up $139 million from a year ago and about the same as last quarter.
"Inspection operating income was comparable to the fourth quarter of 2006 and higher than our expectations. This was because a normal seasonal decline in activity did not occur as anticipated with higher demand in the UK, Africa, and the U.S. Gulf of Mexico.
"Our ROV business had a very good quarter. Year-over-year, operating income increased nearly 25%. We improved our average revenue per day-on-hire to nearly $7,900, up approximately 20%, and increased our days on hire by 7% as we grew our average fleet size. Average operating income per day-on-hire rose to over $1,900, more than 15%. The sequential quarterly increase in ROV operating expenses was largely attributable to higher costs associated with recruiting, training, and retaining personnel. We expect our quarterly operating income to improve during the remainder of the year and we continue to expect 2007 operating income growth of $20 to $30 million over 2006. During the quarter we put seven new vehicles into service to meet growing market demand, and at the end of March 2007 we had 193 ROVs in our fleet.
"Subsea Projects operations performed, as expected, at a level similar to the fourth quarter of 2006. Quarterly operating income did, however, sequentially improve due to the gain on sale of the Ocean Service. The very recent signing of two contracts to provide vessel and ROV services to support hurricane damage-related platform removal and well plug and abandonment operations is significant for Subsea Projects. Given the magnitude of work we will be undertaking to perform these contracts, we have gained confidence in our guidance of achieving Subsea Projects operating income in 2007 comparable to 2006.
"In summary, our business outlook for 2007 remains unchanged from our last earnings release in February. We expect to continue to benefit from our expanded Subsea Products capacity and the expansion of and improved pricing on our ROV fleet.
"Taking into consideration our earnings during the first quarter and our increased confidence in our Subsea Projects forecast, we are raising the bottom estimate of our 2007 EPS guidance range. We now forecast record EPS for 2007 in the range of $2.70 to $2.90. We continue to anticipate the 2007 growth in EPS will be led by operating income improvements in Subsea Products and ROVs. For the second quarter of 2007 we are forecasting EPS of $0.67 to $0.73."
Oceaneering is a global oilfield provider of engineered services and products primarily to the offshore oil and gas industry, with a focus on deepwater applications. Through the use of its applied technology expertise, Oceaneering also serves the defense and aerospace industries.
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