Morningstar | Subsea 7's Top Line Improves in First Quarter but Bottom-Line Weighed by Weaker Pricing
Subsea 7 saw its first-quarter revenue increase 6% year over year (although sequentially revenue fell 16% due to the normal seasonal slowdown), owing to a 28% increase in the SURF segment offsetting a 69% plunge in the Renewables segment. However, adjusted operating margins were flat at about 1% as lower profitability in Renewables offset lower corporate-level costs. Our fair value estimate and no-moat ratings are unchanged for now.The SURF segment saw margins fall to 1% from 2% despite the strong increase in revenue, owing to weakened pricing. However, Subsea 7 and its peers are all seeing stronger activity, and this should allow for better pricing on contracts signed this year, translating into margin improvement in 2020 and beyond.
The Renewables result is somewhat discouraging. The segment's key offshore wind end market remains very lumpy. Project activity has dried up currently, but new awards should be forthcoming in 2019. More worrying, however, is management's commentary on increasing competition in this market.
Subsea 7 is a provider of seabed-to-surface engineering, construction and services contractor to the offshore energy industry. Co. provides products and services required for subsea field development, including project management, design and engineering, procurement, fabrication, survey, installation, and commissioning of production facilities on the seabed and the tie-back of these facilities to fixed or floating platforms or to the shore. Co. also provides products and capabilities to deliver full Life of Field services to its clients. Through its i-Tech Division, Co. provides remotely operated vehicles and tooling services to support exploration, production and drilling activities.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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