Dj President-Elect's Oil Allies Aren't Keen To Boost Drilling

It has been about a month since the last earnings report for Oceaneering International (OII). Shares have added about 17% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Oceaneering International due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Oceaneering International's Q3 Earnings Lag Estimates, Revenues Beat

Oceaneering International reported an adjusted third-quarter 2024 profit of 36 cents per share, which missed the Zacks Consensus Estimate of 44 cents. This was due to lower-than-expected operating income from the company’s Subsea Robotics, Offshore Projects Group, Integrity Management & Digital Solutions and Aerospace and Defense Technologies segments.

However, the bottom line was flat year over year. This can be attributed to year-over-year strong operating income from the Manufactured Products segment.

Total revenues were $679.8 million, which beat the Zacks Consensus Estimate of $674 million and increased approximately 7.1% from the year-ago level of $635 million.

The company bought back 422,229 shares at a cost of around $10 million in the third quarter. OII reported a net income of $41.2 million and an adjusted EBITDA of $98.1 million, while consolidated operating income for the same period was $71.3 million.

OII's fleet of Remotely Operated Vehicles (ROVs) numbered 250 with a utilization rate of 69%.

Segmental Information

Subsea Robotics: The unit provides remotely operated submersible vehicles for drill support, vessel-based inspection, subsea hardware installation, pipeline surveys and maintenance services.

Revenues totaled $215.7 million compared with the year-ago quarter’s $197.3 million. The top line surpassed our projection of $201.5 million.

The segment also reported an operating income of $65.7 million compared with $47.8 million a year ago. The figure was also higher than our estimate of $60.6 million.

Manufactured Products: The segment focuses on the manufactured products business, theme park entertainment systems and automated guided vehicles.

Revenues amounted to $143.7 million, up substantially from the prior-year figure of $122.9 million. However, the top line missed our projection of $157.4 million. The segment posted an operating profit of about $11.3 million, up from the year-ago quarter’s $8.2 million. Moreover, the reported figure beat our estimate of $9.1 million.

Additionally, the backlog rose to $671 million as of Sept. 30, 2024, from $556 million as of Sept. 30, 2023.

Offshore Projects Group: This segment involves Oceaneering’s former Subsea Projects unit, excluding survey services and global data solutions and the service and rental business, excluding ROV tooling.

Revenues decreased about 1.9% to $147.5 million from $150.3 million in the year-ago quarter, due to changes in project mix in international markets, vessel crane repair costs and associated vessel downtime. However, the figure beat our projection of $144.3 million. The unit’s operating income totaled $20.3 million compared with the prior-year quarter’s $26.7 million. The figure beat our estimate of $18.7 million.

Integrity Management & Digital Solutions: This segment covers Oceaneering’s Asset Integrity unit, along with its global data solutions business.

Revenues of $73.5 million increased from the year-ago quarter’s $66.1 million. However, the figure marginally missed our projection of $73.6 million. The segment reported an operating income of $0.7 million, down from the prior-year quarter’s $3.2 million. The figure also missed our estimate of $0.9 million.

Aerospace and Defense Technologies: The segment is engaged in Oceaneering’s government business, which focuses on defense subsea technologies, marine services and space systems.

Revenues totaled $99.2 million, marginally up from $98.6 million recorded in the third quarter of 2023. Moreover, the figure beat our estimate of $97.2 million. The operating income dropped to $12.2 million from $14.1 million in the year-ago quarter and missed our estimate of $12.9 million.

Capital Expenditure & Balance Sheet

The capital expenditure in the third quarter, including acquisitions, totaled $24.9 million.

As of Sept. 30, 2024, OII had cash and cash equivalents worth $451.9 million and $461.6 million, respectively, along with a long-term debt of about $480.7 million. The debt-to-total capital was 40.6%.

Outlook

The company has updated its full-year guidance for 2024 and has introduced initial projections for 2025.

For the fourth quarter of 2024, the company expects a slight increase in consolidated revenues compared with the third quarter, while adjusted EBITDA is anticipated to remain consistent with the same.

For 2024, it anticipates consolidated adjusted EBITDA to range between $340 million and $350 million. For 2025, consolidated EBITDA is expected to be between $400 million and $430 million. Free cash flow is anticipated to exceed the 2024 level.

At the segment level, OII’s Subsea Robotics is predicted to experience a slight decline in revenues and operating profitability due to normal seasonal variations. Although revenues for Manufactured Products are expected to rise, operating profitability is likely to decline significantly. Conversely, Offshore Projects Group is expected to see increased revenues and notably higher operating profitability.

OII’s Integrity Management & Digital Solutions is anticipated to improve its operating profitability, even with a decline in revenues, while both revenues and operating profitability for Aerospace and Defense Technologies are expected to decrease. Unallocated expenses for OII are projected to be around $40 million.

Oceaneering projects increased revenues and enhanced operating performance across all segments in 2025, particularly from Subsea Robotics, Manufactured Products and Integrity Management & Digital Solutions.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

The consensus estimate has shifted 23.68% due to these changes.

VGM Scores

At this time, Oceaneering International has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Oceaneering International has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Oceaneering International is part of the Zacks Oil and Gas - Field Services industry. Over the past month, Liberty Oilfield Services (LBRT), a stock from the same industry, has gained 3.4%. The company reported its results for the quarter ended September 2024 more than a month ago.

Liberty Oilfield Services reported revenues of $1.14 billion in the last reported quarter, representing a year-over-year change of -6.4%. EPS of $0.45 for the same period compares with $0.85 a year ago.

For the current quarter, Liberty Oilfield Services is expected to post earnings of $0.17 per share, indicating a change of -68.5% from the year-ago quarter. The Zacks Consensus Estimate has changed -16.8% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #5 (Strong Sell) for Liberty Oilfield Services. Also, the stock has a VGM Score of A.

Zacks Investment Research

Energy stocks were leaning lower pre-bell Friday as the Energy Select Sector SPDR Fund declined by 0.1% recently.

The United States Oil Fund was down 0.1% and the United States Natural Gas Fund was 4.2% lower.

Front-month US West Texas Intermediate crude oil was 0.5% lower at $69.73 per barrel on the New York Mercantile Exchange. Global benchmark North Sea Brent crude oil lost 0.6% to $73.80 per barrel, and natural gas futures were down 5.1% at $3.17 per 1 million British Thermal Units.

Equinor is reducing its renewable energy unit's staff by 20%, the equivalent of nearly 250 full-time jobs, a spokesperson said. Equinor shares were down more than 1% premarket.

BP said it has made a final investment decision to go ahead with the $7 billion Tangguh Ubadari carbon capture, utilization, and storage compression project in Indonesia on behalf of its production sharing contract partners. BP shares were down 0.5% pre-bell.

Exxon Mobil and partners withdrew from talks with Guyana's government on terms for exploring and developing a shallow-water oil block, Reuters reported, citing Guyana's Vice President Bharrat Jagdeo. Exxon Mobil shares were 0.3% lower premarket.

Exxon Mobil Corporation XOM, the U.S. oil and gas giant, is scheduled to drill a well targeting natural gas finds offshore Cyprus in January 2025. Since the Russian invasion of Ukraine in 2022, many major energy companies have been trying to explore new energy reserves in the Mediterranean region in an attempt to diversify from Russia.

Many oil-producing companies have been eyeing the East Mediterranean region, where many natural gas discoveries have been made in recent years. Following the invasion of Ukraine, Europe witnessed energy supply disruptions and moved toward finding new resources to ensure the region’s energy security.

ExxonMobil secured exploration licenses in Cyprus in 2017. The company made a significant gas find in 2019 at a well named Glaucus. The drilling activity, scheduled for next year, includes two wells, namely Pegasus and Electra. Per a senior executive at XOM, the Electra well is anticipated to yield promising results.

Electra is located in Block 5, one of Cyprus’ 13 offshore exploration areas. According to Reuters, Electra has a huge prospect of becoming a standalone development. This means that it has the potential to become a commercially viable resource on its own. However, the company mentioned that it needs to conduct appraisal drilling of the well before reaching any conclusion. Additionally, Pegasus is situated close to Glaucus in Block 10 offshore Cyprus.

ExxonMobil mentioned that it has gathered comprehensive, three-dimensional seismic data that indicate the presence of hydrocarbon reserves. The company has identified huge prospects in the region, and it is taking the next step in the exploration phase, which involves testing the potential using a drilling rig. XOM holds licenses over two offshore blocks in partnership with QatarEnergy to explore oil and gas reserves in the country.

XOM’s Zacks Rank and Key Picks

Currently, XOM carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the energy sector are Smart Sand, Inc. SND, FuelCell Energy FCEL and Nine Energy Service NINE, each presently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Smart Sand is a low-cost producer of high-quality Northern White frac sand, an ideal proppant for hydraulic fracturing and various industrial applications. The company provides proppant and other logistics services for several companies in the oil and gas industry. With sustained oil and gas market demand, SND is expected to see growing demand for its services, reflecting a positive outlook.

FuelCell Energy is a clean energy company offering low-carbon energy solutions. It produces power using flexible fuel sources such as biogas, natural gas and hydrogen. The company designs fuel cells that generate electricity through an electrochemical process that combines fuel with air, reducing carbon emissions and minimizing the environmental impact of power generation. As such, FCEL is anticipated to play a crucial role in the energy transition by enabling industries and communities to shift from traditional fossil fuels to low-carbon alternatives.

Nine Energy Service provides onshore completion and production services for unconventional oil and gas resource development. The company operates across key prolific basins in the United States, including the Permian, Eagle Ford, MidCon, Barnett, Bakken, Rockies, Marcellus and Utica, as well as throughout Canada. With a sustained demand for oil and gas in the future, the need for NINE’s services is anticipated to increase, which should position the company for growth in the long run.

Zacks Investment Research