Morningstar | Frank's Reports Mediocre First-Quarter Results, but Issues Very Strong 2019 Guidance
Frank's International issued mediocre first-quarter results. Revenue fell 1% sequentially due to a 3% drop in Tubular Running Services (the company's largest segment) and a 16% drop in Tubulars, slightly offset by a 22% increase in the Cementing Equipment segment. Adjusted EBITDA margin dropped sequentially to 6.7% from 8.8% previously due mostly to a fall in TRS margins to 18% from 22% previously. However, the firm issued very strong guidance for 2019, including a 15% increase in revenue for the full year versus 2018 and 30%-50% EBITDA incrementals. For now, our fair value estimate and narrow moat rating remain unchanged.Frank's initiated a reporting segment reorganization in the first quarter. In terms of revenue, the new Tubular Running Services segment constitutes almost all of the former U.S. Services and International Services segments. Tubulars is the former Tubular Sales, and Cementing Equipment is the former Blackhawk. Also, the company reorganized cost allocation across segments to better reflect each segment's usage.
The sequential drop in TRS results was due to a temporary drop in Gulf of Mexico activity combined with the usual seasonal drop in international markets. Margins dropped a sizable 400 basis points because of the drop in revenue represented higher-margin work and because of mobilization costs for increased activity in 2019. Segment revenue is still up 24% on a year-over-year basis and should continue to increase in 2019 due to higher activity.
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