Cameron Second Quarter Earnings per Share Up
Cameron (NYSE: CAM) reported net income of $123.2 million, or $1.08 per diluted share, for the quarter ended June 30, 2007, compared with net income of $76.0 million, or $0.64 per diluted share, for the second quarter of 2006. The 2007 results include a gain of $0.06 per diluted share related to the favorable resolution of certain tax matters, and the second quarter 2006 results included a net after-tax gain on unusual items of approximately $0.6 million, or $0.01 per diluted share. Total revenues were $1,139.0 million for the quarter; up more than 32 percent from 2006's $857.8 million, and income before income taxes was $176.8 million, up 51 percent from the $116.9 million of a year ago. Cameron Chairman and Chief Executive Officer Sheldon R. Erikson said that the results reflect continued solid performance from the Valves & Measurement (V&M) group, significant improvement in profitability from the Compression Systems (CS) division and gains in revenues and earnings in the Drilling & Production Systems (DPS) group.
Subsea, offshore separation equipment, engineered valves orders drive backlog to record level
Total orders for the second quarter of 2007 were $1.31 billion, up four percent from year-ago levels, and five percent sequentially. Erikson noted that orders for each of the Company's operating units increased over the prior year, and that the DPS group's orders were up more than 13 percent sequentially. "Subsea orders were the highest since the second quarter of 2005; we also recorded the strongest level of bookings for separation equipment in our history, as offshore operators continued to place orders related to their subsea developments," Erikson said. "In addition, we saw another solid quarter with respect to orders for V&M's engineered valves, also driven by offshore development applications. As we had anticipated, the relative decline in orders for new drilling equipment was offset by increases in other product lines." He noted that year-to-date orders totaled approximately $2.56 billion, down modestly from the $2.59 billion of the first half of 2006, and that at June 30, 2007, total backlog was a record $3.98 billion, up from the prior quarter's record of $3.77 billion and the June 30, 2006 level of $3.10 billion.
Capital spending program continues; new subsea facility nearly complete, surface expansion approved
Erikson said that the Company's year-to-date cash flow from operations was approximately $54 million, compared with approximately $112 million in the first half of 2006. "During the first half of 2007, we have invested heavily in working capital, primarily inventories, in support of the overall strong market conditions," he said.
Erikson also noted that Cameron spent approximately $108 million in capital expenditures in the first half, with most of that directed toward the Company's efforts to upgrade machine tools and reconfigure manufacturing processes in selected locations in order to further improve efficiency and capacity. The DPS group's new subsea manufacturing facility in Malaysia will begin production in mid-August. "This new facility adds to our subsea tree manufacturing capabilities, and frees up capacity in our nearby Singapore facility for the production of surface equipment," he said.
Erikson also said that Cameron's board has approved a $63 million expenditure for a new manufacturing facility in Romania. The new facility, which should begin production in late 2008, will add to the DPS group's ability to produce high-specification wellheads and trees for the surface equipment markets, particularly in Europe, Africa, Russia and the Mediterranean and Caspian Seas. "The combination of current product demand, new projects now under way and customers' plans for new developments in these regions over the next several years make this a prudent investment at this time," Erikson said. "Our existing operations in Romania provide equipment for conventional production installations; the new facility will incorporate state-of-the-art technology and machine tools to provide high-end product for a broader, more challenging range of applications."
Debt-to-cap ratio remains low; balance sheet provides financial flexibility
At June 30, 2007, Cameron's total debt, net of cash and short-term investments, was $287.4 million, up from $113.1 million at March 31, 2007, and the Company's net debt-to-capitalization ratio was approximately 14.0 percent.
Erikson also noted that the Company repurchased 1,862,400 shares of its common stock during the quarter at an average price of $67.89 per share, and has spent more than $277 million on share buybacks in the first half of 2007. Erikson said that Cameron expects to have ample cash available for possible acquisitions or additional repurchases of common stock.
Pension plan changes to result in non-cash charges
As a result of Cameron's recent decision to terminate its U.S. defined benefit pension plans and distribute the assets to the participants, the Company will record non-cash, pre-tax charges totaling approximately $85 million between the fourth quarter of 2007 and the first quarter of 2009. The majority of the charge is expected to be recorded during the fourth quarter of 2007, but cannot be estimated with certainty at this time. "The timing of the charges will depend on when assets are distributed from the plans," Erikson said. "During the fourth quarter of this year, participants who are no longer employees may elect to withdraw their balances; current employees will receive their balances once the necessary governmental approvals are received, which we anticipate will be in late 2008 or early 2009. The remaining charges will be recognized at that time." Erikson also said that this process will require an additional $10 million to $15 million to be funded to the plans in the latter part of 2008 or early 2009.
Full-year earnings expectations increased
Erikson said that Cameron's third quarter earnings are expected to be in the range of approximately $1.05 to $1.10 per share, and that full-year earnings, excluding any non-cash charges related to the pension plan termination, are expected to be approximately $4.10 to $4.20 per share, compared with the Company's previous guidance of $3.85 to $4.00 per share for the year.
Cameron is a leading provider of flow equipment products, systems and services to worldwide oil, gas and process industries.
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