FMC Technologies' CEO Discusses Q4 2011 Results - Earnings Call Transcript

FMC Technologies (FTI)

Q4 2011 Earnings Call

February 15, 2012 9:00 am ET

Executives

Bradley Alexander -

John T. Gremp - Chairman, Chief Executive Officer and President

Maryann T. Seaman - Chief Financial Officer and Vice President

Robert L. Potter - Executive Vice President of Energy Systems

Analysts

Joe Hill - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Douglas L. Becker - BofA Merrill Lynch, Research Division

William Sanchez - Howard Weil Incorporated, Research Division

Joseph D. Gibney - Capital One Southcoast, Inc., Research Division

Mark S. Urness - Credit Agricole Securities (USA) Inc., Research Division

Robert Connors - Stifel, Nicolaus & Co., Inc., Research Division

Robin E. Shoemaker - Citigroup Inc, Research Division

Edward Muztafago - Societe Generale Cross Asset Research

Brian Uhlmer - Global Hunter Securities, LLC, Research Division

Robert MacKenzie - FBR Capital Markets & Co., Research Division

Presentation

Operator

Good morning, and welcome to the FMC Technologies Fourth Quarter 2011 Earnings Release Teleconference. [Operator Instructions] In the event of technical difficulties during this call, we will post updates at www.fmctechnologies.com/earnings. Thank you. Your host is Brad Alexander, Director of Investor Relations. Mr. Alexander, you may begin your conference.

Bradley Alexander

Thank you, Angela. Good morning, and welcome to FMC Technologies Fourth Quarter 2011 Earnings Conference Call. Our news release and financial statement issued yesterday can be found on our website.

I would like to caution you with respect to any forward-looking statements made during this call. Although these forward-looking statements are based on our current views and assumptions regarding future events, future business conditions and our outlook based on currently available information, these forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by these statements. I refer you to our disclosures in our 10-K, 10-Q and other filings with the SEC.

Additionally, we have changed our reporting structure to better reflect our strategic priorities. An 8-K was filed with the SEC that restated past results under the new reporting structure. All results discussed during the call will be reported using our 3 new segments, subsea Technologies, Surface Technologies and Energy Infrastructure, unless we indicate otherwise.

I will now turn the call over to John Gremp, FMC Technologies Chairman, President and CEO.

John T. Gremp

Good morning. Welcome to our fourth quarter 2011 conference call. With me today are Maryann Seaman, our CFO; and Bob Potter, our Executive Vice President. I'll start with some highlights from the quarter and for the year. Maryann will provide specifics on our financial performance and our outlook for 2012 and then we'll open up the call for your questions.

Regarding the results for the quarter

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earnings were $0.41 per diluted share for the quarter and $1.64 for the full year, a 7% increase over our prior year performance and our 10th consecutive year of earnings growth. Despite the earnings growth, our subsea Results were below our previous guidance.

We reached our revenue expectation, but as we discussed last quarter, the continuing challenges associated with ramping up our subsea business by almost 40% from the first quarter to the fourth quarter of 2011 negatively impacted margins. We also incurred some other specific costs, which I'll discuss later.

Total company revenue was $1.5 billion for the quarter and $5.1 billion for the year. Fourth quarter operating income was $166 million, bringing our 2011 total to $619 million. Subsea Technologies inbounded $1.3 billion of awards in the fourth quarter, bringing our full year total to $3.9 billion. Our backlog now stands at $4.1 billion.

Revenue for the quarter in Subsea Technologies was $964 million, an increase of 38% over the prior year quarter and 16% sequentially. This volume is a record and enabled us to reach $3.3 billion in revenue for the year. In 2012, we expect to generate approximately $4 billion in revenue, and our fourth quarter revenue of almost $1 billion supports this target.

Margins, however, for this segment of 7.2% in the quarter were clearly below our expectations. The margin shortfall was largely related to our Subsea Eastern Region. In the quarter, we took a charge related to the Laggan-Tormore project for $19 million due to increased cost associated with an engineering interface issue. In addition, it was necessary to add resources to execute the project within the customer's need date. Additionally, we recognized cost primarily associated with anticipated project delays on West Africa projects, where we're not on schedule to meet our customer's contractual delivery dates.

Finally, as we respond to growth in our subsea business, we continue to experience higher labor cost associated with our expanding workforce. We've also increased our R&D spending as we accelerate the development of our subsea portfolio.

Surface Technologies' fourth quarter revenue of $374 million was up 38% from 2010 and 11% from the third quarter, driven largely by North American shale activity for both fluid control and surface wellhead. International activity has improved for surface wellhead as we've recovered from the challenges we faced earlier in the year, and orders that were delayed are now starting to ship. We're pleased that these issues from the first half of the year are largely behind us.

Energy Infrastructure fourth quarter revenue of $151 million increased 21% from 2010 and 17% from the third quarter as we experienced a traditionally stronger fourth quarter.

Now turning to our subsea business. In the fourth quarter, we inbounded 43 subsea trees, bringing our 2011 total to 165 trees. This represented 53% of the total market, in which 311 trees were awarded. Our frame and alliance agreements with many of our partners again contributed significantly towards our ability to achieve another strong year of awards.

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