OII 4Q08 Pre Call Note – Good Quarter, Sub Street Guidance

OII Reports Solid 4Q08 Results; Mid Point 2009 Guidance A Touch Below Consensus, As Usual Looks Conservative

  • The 4Q Numbers: In Line
    • Revenues reported of $525.7 million vs $522 mm expected
    • EPS of $0.93 vs $0.93 expected
      • EPS includes a $0.10 charge to write down the value of an investment in an oil tanker that may be converted for use by the company's MOPS (mobile offshore production system divsion).
  • Guidance: Below Street

    • 1Q09: Guiding to $0.60 to $0.70 vs Street Consensus of $0.76
    • 2009: EPS of $3.00 to 3.60 vs.

      • the Street's $3.48 (range of $2.70 to $4.12 from 15 analysts)
      • and 2008 of $3.58.
  • Balance Sheet: Strong, low debt

    • $229 million long term debt as of 12/31/08, for a net debt to total cap of 18%
    • They have debt maturing of $105 mm this year and talk of repaying it out of free cash flow (cash flow above maintenance capex generated from operations this year)
  • Favorite Quote:

We do not pretend to have a "bulletproof" business strategy. It would, therefore, be presumptuous to claim we know the exact impact our customers' spending cuts will have on demand for our services and products. However, we believe the deepwater market will be among the least vulnerable to these cuts. This belief is based on the inherent size and long-term nature of deepwater projects and our expectation that oil prices will inevitably rebound to a level that will make these projects more economical. While work on most authorized deepwater projects is likely to continue, the urgency to start new projects is in question.

  • Other Items of Note:

    • ROV utilization fell to 82% for the year vs 87% in 2007 after a substantial expansion of their fleet. Would like to see this addressed on the call in light of deepwater newbuild delays.
    • Inspection division has not yet seen an uptick in business following Gustav/Ike. In the past, bad hurricane seasons have been a boon for this part of the business. 
    • Share count keeps trickling lower and I'd like to hear more about the plan for the buyback in 2009 given their cash flow apparently will outstrip both maintenance capital and debt repayment needs, perhaps resulting in a 1 or even 2% decline in the count by year end. 
    • MOPS is still small piece of the pie but becoming a drag on margins, would like to know more about the thinking here.

  • Nutshell: Good quarter, great year, want to get a better handle on their outlook.  These are the remote operated vehicle, subsea products, and subsea inspection guys we play around in every now and again. Total company margins eased from 17% to 16% sequentially and while the ROV piece of the business saw improvements in margins, utilization was off.  I'd like to hear more about that and what their capital budget for 2009 gets them in terms of incremental units. Sounds like they are confident in keeping the ROVs busy but that subsea products may be impacted later this year due to project delays and hence the conservative looking guidance. I'm not in the name now but will likely be looking to be more active again along with other deepwater plays in short order.

  • Conference Call: Today, 11 EST

One Response to “OII 4Q08 Pre Call Note – Good Quarter, Sub Street Guidance”

  1. 1
    BirdsofpreyRcool Says:

    Thank goodness we’re Americans… and not Russians. Nothing against the Russians, it’s just that they are a pessimistic people (their history had a little something to do with that, so it’s not really their fault). But, as Americans, we are Optimists at heart. So, we have had just about as much negativity over the last week that we can stand. Whatever they do in Washington, we will live through it. We don’t like to live in fear for long.

    So today, we rally. If only for a while.

    Credit Markets opened a lot better, have weakened a bit from there, but are still higher than yesterday’s lows (wides).

    IG 207 1/2 -5 1/2 bps. This traded as tight as as tight as 206, from it’s 213 official close yesterday. Sure would like to see it drop back below the 200 level.

    HY 73.44 +0.06. A tad better from yesterday’s close. Would like to see this get above 76 to feel better about the below-investment-grade kids (which include some of our favs, like HK and CHK).

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