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Oceaneering International Inc. Dipped Into the Red Once Again

Oceaneering International's (NYSE: OII) return to profitability didn't last long. After finally jumping back into the black last quarter -- reversing a string of losses -- the offshore service and product company's earnings headed back into negative territory during the third quarter. The company expects that trend to continue. It anticipates an even deeper loss next quarter and that 2018's results will "significantly lower" than this year's because the oil industry expects to spend even less money drilling offshore.

Oceaneering results: The raw numbers

Metric

Q3 2017

Q2 2017

Year-Over-Year Change

Revenue

$476.1 million

$515.0 million

(13%)

Adjusted net income

($1.8 million)

$2.1 million

N/M

Adjusted EPS

($0.02)

$0.02

N/M

Data source: Oceaneering International. EPS = earnings per share.

Oil companies just aren't ready to put more offshore drilling rigs back to work. Image source: Getty Images.

What happened with Oceaneering this quarter? 

Results took a step backward.

  • Remotely operated vehicles (ROVs) revenue rose 1% from the second quarter to $104.6 million. Driving the improvement was utilization, which increased from 48% to 50%. That said, operating income in the segment plunged more than 50% due to higher costs mainly because it had fewer work days in areas with higher rates.
  • Subsea products revenue dropped 18% from last quarter to $143.6 million, though operating income improved 17% thanks to higher margins because a greater percentage of revenue came from its service and rental business unit.
  • The subsea projects segment was once again one of the few bright spots, delivering a 6% improvement in revenue to $80.1 million while operating income more than doubled thanks to a seasonal increase in activities in the U.S. Gulf of Mexico.
  • Asset integrity revenue was up 5% to $61.1 million, but operating income dropped 19% due to weaker margins.
  • Finally, revenue from the advanced technology segment slumped 16% to $86.7 million while operating income declined 13% due to lower levels of work for the U.S. Navy.

What management had to say 

CEO Rod Larson, commenting on the company's third-quarter results, said: 

Our third quarter adjusted operating results were in line with our expectations, with the exception of ROVs. Furthermore, each of our operating segments remained profitable and generated substantial EBITDA. On a consolidated basis, for the first nine months of 2017, we have generated $179 million of adjusted EBITDA and $84 million of free cash flow. These results are commendable in light of an offshore oilfield services and products market landscape that remains extremely challenging due to continued pricing degradation and the sluggish rate of subsea project approval and progression.

Oceaneering reported a solid quarter considering how tough the offshore drilling market is these days. Furthermore, despite the reported loss, the company has remained cash flow positive this year, which is giving it the money to continue paying a dividend while maintaining a healthy balance sheet. 

Looking forward 

Unfortunately, Oceaneering doesn't expect market conditions to improve anytime soon. According to Larson, seasonality and reduced industry activity levels would cause fourth-quarter results to be "considerably lower" than the third quarter. That said, he still expects the company to be "marginally profitable at the operating income line" for the full year.

However, as challenging as 2017 has been, Larson believes that 2018 will be even worse, stating:

Based on the current number of floating rigs working and expectations for further reductions in oil and gas industry capital and operating expenditures as offshore activities get pushed into 2019, we believe our 2018 earnings will be significantly lower than 2017.

On the bright side, he did note that the company expects to generate enough cash flow to service its debt and fund maintenance and expansion capital expenses. He also anticipates that offshore activity levels should start improving in the second half of next year and that oil and gas companies will eventually invest more money offshore so they can meet future oil demand.

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool recommends Oceaneering International. The Motley Fool has a disclosure policy.