Lufkin's Bookings, Optimisim on the Rise
Lufkin Industries announced financial results for the first quarter of 2010.
Earnings from continuing operations for the first quarter of 2010 declined to $6.0 million, or $0.40 per diluted share, compared with $9.1 million, or $0.61 per diluted share, for the first quarter of 2009. Excluding the impact of a $1.9 million (net of tax), or $0.13 per diluted share provision related to the class-action lawsuit against the Company, earnings from continuing operations for the first quarter of 2009 were $11.0 million, or $0.74 per diluted share. Revenues declined to $127.1 million compared with $153.1 million for the first quarter of 2009.
"We're encouraged by the significant jump in bookings to start 2010 and the sequential improvement in net income, after such a challenging 2009," said John F. "Jay" Glick, president and chief executive officer of Lufkin. "Oil prices appear to have stabilized at levels that support a resumption in capital spending in oil and natural gas liquids.
"While our first quarter results were impacted somewhat by unusually cold weather in North America, the pace of new order bookings picked up significantly, particularly in oil-related production projects. As a result, we experienced a substantial increase in our backlog, especially in the Oilfield Division, which doubled during the quarter, driven by strong orders from the oil plays in Texas as well as in the Bakken shale in North Dakota.
"Bookings in the Power Transmission Division increased 25% from the fourth quarter of 2009, led by increases in international orders from the energy sector, which tend to be larger, longer-term contracts, and in our gear repair business in Canada.
"As a result, our combined order backlog increased to $192.5 million in the first quarter from $140.2 million in the fourth quarter of 2009, but it was still down somewhat from the $208 million at the end of last year's first quarter.
"Overall, market fundamentals have continued to strengthen over the past two quarters as oil prices have increased and the global economy has improved. This has encouraged increased exploration and production spending, particularly in oil drilling activities. In the U.S., the oil-driven rig count rose 17% during the first quarter. Over the past nine months, the U.S. oil-directed rig count has risen 126%.
"While concerns about the weak natural gas prices cause us to remain cautious in our outlook for 2010, our optimism is rising with the continued increase in bookings. Lufkin stands to benefit significantly from customers that are increasingly transitioning capital expenditure from natural gas to oil.
"I would caution that several large domestic customers booked their entire year's worth of orders in the first quarter, so the current rate may not be sustainable. However, several major international jobs on the horizon could offset any potential softening in U.S. bookings," Glick added.
FIRST QUARTER RESULTS
Oilfield Division -- Oilfield revenues for the first quarter of 2010 decreased 19% to $89.9 million, compared to $111.7 million in the first quarter of 2009, but were flat from the fourth quarter of 2009. Oilfield's new business bookings increased 688% from a year ago and 39% from the prior quarter. Oilfield's backlog doubled to $86.5 million at the end of the first quarter from $43.3 million at the end of 2009, due to order activity in the Bakken and West Texas regions.
Power Transmission Division -- Revenues from Lufkin's Power Transmission products decreased 10% to $37.2 million, compared to $41.5 million in last year's first quarter, and decreased 2% from the fourth quarter of 2009. New order bookings in Power Transmission rose 25% sequentially and 72% from a year ago to $46.2 million. Power Transmission backlog at March 31, 2010, increased to $106.0 million from $97.0 million at December 31, 2009, primarily from an increase in international orders from the energy sector.
Consolidated – Gross profit margin for the first quarter increased to 22.5% of revenues, compared to 22.2% of revenues in last year's first quarter, in spite of a 17% decline in revenues, and compared to 20.8% in the fourth quarter of 2009. This sequential gross margin increase was the result of improved leverage on fixed costs.
Operating income declined to $9.3 million in the first quarter of 2010, compared to $12.8 million in last year's first quarter, which included the pre-tax impact of $3 million in additional litigation expense. Selling, general and administrative expenses as a percentage of revenues were 15.2% compared to 12.0% in the prior year period due to the decline in revenues as well as international expansion efforts.
"Steady oil prices and a continuing rise in land drilling activity are driving our cautious optimism for the rest of 2010. These market fundamentals bode well in particular for the second half, as our customers begin to ramp up spending and commit to new projects," Glick said.
"Our first quarter 2010 bookings were slightly ahead of expectations, and we expect continued strength, albeit at a slower pace than in the first three months of this year. We are encouraged that several large oil and gas and LNG projects are on the horizon that could provide significant activity in the second half of 2010 in our Power Transmission Division. This improved environment is likely to generate attractive market opportunities as we continue to improve our competitive position through investments in technology, process innovation and material cost reductions," Glick added.