Morningstar | TechnipFMC's 1Q Results Weak, but Strong Orders and Updated Guidance Point to Brighter Outlook
TechnipFMC posted fairly weak first-quarter results, with revenue down 12% sequentially and 7% year over year and adjusted operating margin falling to 6.3% from 8.9% in the year-ago quarter. Sequentially, the drop was driven mostly by the onshore/offshore and surface segments, whereas the year-over-year fall was broad-based. However, the company posted very strong orders and management issued positive revisions to its 2019 guidance, pointing to a brighter near-term outlook. Our fair value estimate and no-moat rating are unchanged, for now.The onshore/offshore segment saw a 20% sequential drop in revenue off a strong prior quarter, as several large projects (especially Yamal) came to a close. However, the segment posted $3.1 billion in new orders, lifting trailing 12-month book/bill to 1.48 times. Furthermore, this didn't include any new liquefied natural gas awards, which are likely to provide strong order inflow over the next several years. We have been impressed that TechnipFMC has been able to maintain high (double-digit) margins even as its lucrative Yamal project has wound down. If it continues to generate high margins on its upcoming slate of projects, then we will probably raise our long-term margin expectations for the onshore/offshore segment.
Likewise, the subsea segment's trailing 12-month book/bill reached 1.37 times, pointing to coming improvement in that segment. Impressively, almost one half of orders so far in 2019 have been integrated project awards. TechnipFMC introduced this concept in 2017 following its merger and has since achieved an impressively swift pace of customer adoption.
Unsurprisingly, the surface segment had the weakest results, with revenue falling 6% sequentially and adjusted operating margins falling to 3.1% from 11.1% in the prior quarter. The segment has been hit hard by a slowdown in U.S. shale completions activity. We expect this slowdown to be alleviated in the second half of 2019, however.
TechnipFMC is global leader in oil and gas projects, technologies, systems, and services. Co. offers subsea, surface, onshore, and offshore solutions for oil and gas projects. Co. serves customers worldwide. With Co.'s technologies and production systems, integrated expertise, and comprehensive solutions, Co. is transforming Co.'s clients' project economics. Co. is uniquely positioned to deliver greater efficiency across project lifecycles from concept to project delivery and beyond. Through innovative technologies and improved efficiencies, Co.'s offering unlocks new possibilities for Co.'s clients in developing their oil and gas resources.
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