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Oceaneering International Earnings Stay Afloat Despite a Challenging Offshore Market

Image source: Getty Images.

While the price of oil improved during the second quarter, that didn't provide any boost to the offshore drilling sector. Instead, the downward pressure on Oceaneering International's (NYSE: OII) financial results remained in full force weighing on profitability, both sequentially and year over year. Unfortunately, the company doesn't see that trend reversing this year.

Oceaneering results: The raw numbers

Metric 

Q2 2016 Actuals

Q2 2015 Actuals

Growth (YOY)

Revenue

$625.5 million

$810.3 million

-23%

Net Income

$22.3 million

$65.5 million

-66%

Adjusted EPS

$0.23

$0.66

-65%

Data source: Oceaneering International.

What happened with Oceaneering this quarter? 

The offshore market remains very challenged.

  • Revenue and income from operations across all of the company's five segments declined year over year. However, revenue did increase by 3% over the first quarter thanks to an uptick in revenue at three of its five segments. Meanwhile, operating income declined 20% from last quarter, though without the impact of bad debt that decline moderated to 8% thanks in part to a slight increase in profitability at two of its segments.
  • The biggest weight this quarter was the remotely operated vehicles segment. Revenue declined 35% year over year and 5% sequentially to $139.6 million due to a 6% reduction in revenue per day on hire while utilization remained unchanged at 55%. That was actually a weaker result than the one just turned in by rival Helix Energy Solutions' (NYSE: HLX) robotics division. Robotics revenue at Helix Energy Services jumped 22% sequentially thanks to an improvement in utilization from 39% to 48% due to a seasonal activity increase in the North Sea.
  • Oceaneering's subsea products segment was also weak, with revenue declining 20% year over year and 2% sequentially. Meanwhile, weaker margins weighed on earnings, which were down 32% from last year's second quarter and 24% from last quarter. Margins are expected to weaken even further this year due to competitive pricing.
  • On the bright side, the company's asset integrity, subsea projects, and advanced technologies segments all recorded a sequential uptick in revenue. In subsea projects, the Ocean Alliance returned to work after a scheduled drydocking. Meanwhile, advanced technologies benefited from increased engineering services and support for the U.S. Navy. Finally, while asset integrity's revenue was up, it operated in the red due to a bad debt expense.

What management had to say 

As CEO Kevin McEvoy said about the quarter:

Despite the ongoing challenging offshore market environment, we are pleased that each of our operating segments remained profitable, excluding the negative impact of the bad debt expense. Relative to our peers, overall EBITDA margin of 15% is noteworthy.

Oceaneering has done an admirable job to stay in the black during the downturn. That's more than Helix Energy Solutions can say after it reported another loss last quarter. So far this year Helix lost $38.5 million, after earning $17.7 million over the same time frame last year. Because of its mounting losses Helix recently sold $38.8 million in stock to bolster its balance sheet.

Looking forward 

Oceaneering's ability to remain profitable is growing less certain given its outlook for the rest of the year. According to McEvoy:

With continued limited visibility, we are expecting that the second half of 2016 will be weaker than the first half. We expect lower operating income contributions from Subsea Products and ROVs, partially offset by an increase in Advanced Technologies, while other segment results should be relatively flat on an adjusted basis. We are continuing to focus our operations on proactively working with our customers to develop cost effective and efficient solutions that may enable more projects to progress despite a low commodity price.

Oceaneering, like many others in the industry, is just trying to navigate the currently tough conditions the best it can as it awaits the eventual offshore market recovery. Unfortunately, that recovery could still be a long way off given where oil prices are at the moment and the possibility that it could be 12-18 months after the oil market rebalances before the offshore sector starts to recover. That said, unlike most offshore peers, Oceaneering has lots of liquidity and relatively low debt, which puts it in a better position to wait for the rebound.

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Matt DiLallo has no position in any stocks mentioned. The Motley Fool recommends Oceaneering International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.