Hydril (NASDAQ:HYDL)
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Hydril (Nasdaq:HYDL) reported earnings for the third quarter ended
September 30, 2006 of $0.84 per diluted share, down 19% sequentially
from $1.04 reported in the second quarter of 2006, and up 4% from $0.81
reported for the third quarter of 2005.
On a sequential basis, third quarter revenue of $117.3 million decreased
18%, operating income of $27.8 million was down 23%, and net income of
$19.7 million was down 21%. Compared to the third quarter of 2005,
revenue increased 26%, operating income increased 2%, and net income was
essentially flat.
Third quarter financial results reflect deeper than expected inventory
de-stocking by U.S. premium connection distributors. As expected,
premium connection revenue for Venezuela was also down sequentially as a
result of excess inventory built during the first half of the year.
Pressure control results were in-line with expectations and reflect
increasing capital equipment revenue resulting from progress made on
project orders.
Chris Seaver, President and CEO, commented, “In
the intermediate term, the fundamental drivers for our business continue
to gradually improve. We expect U.S. premium connection distributor
demand to be flat in the fourth quarter, and then increase next year as
we anticipate distributor inventories will stabilize near year-end. We
also expect Venezuelan excess inventories to be consumed at about the
same time. Our pressure control capital equipment markets continue to
strengthen as reflected by our increasing backlog and additional orders
for deepwater blowout prevention systems received since the end of the
quarter.”
Premium Connection Segment
Sequentially, third quarter revenue for Hydril’s
premium connection segment decreased 29% to $63.8 million, operating
income decreased 35% to $18.7 million, and operating margin decreased to
29% from 32%. The majority of the revenue decline was in the Latin
American market due to an expected inventory correction in Venezuela,
which reduced pipe and threading requirements. In addition, revenue in
the U.S. decreased as a result of distributor inventory de-stocking,
which was greater than previously expected, while end-user consumption
remained stable from the second quarter.
Pressure Control Segment
Third quarter revenue for the pressure control segment increased 2%
sequentially to $53.5 million and operating income increased 7% to $14.5
million. Capital equipment revenue increased 15% sequentially to $32.7
million, while aftermarket revenue decreased 14% to $20.9 million. The
increase in capital equipment revenue was primarily the result of
progress made on offshore blowout prevention system projects. As
expected, aftermarket revenue moderated closer to the average of the
past several quarters. Segment operating margin for the third quarter
was 27%, slightly higher than 26% recorded in the second quarter.
At September 30, 2006, pressure control capital equipment backlog was
$289 million, up 9% from $266 million at June 30, 2006, and up from $61
million at September 30, 2005. After the end of the third quarter, the
company received purchase orders for an additional $154 million of
deepwater blowout prevention systems.
Share Repurchase Program
During the third quarter, the company purchased $75 million of stock,
which completed the $100 million of share repurchases authorized by the
Board of Directors in March 2006.
Market Indicators
As more fully described on our website at www.hydril.com
on the “Market Indicators”
page, our principal business drivers are: (1) the U.S. rig count for
rigs drilling at targets deeper than 15,000 feet, (2) the number of Gulf
of Mexico rigs under contract, (3) the international rig count, (4)
worldwide offshore rigs under contract, and (5) the total U.S. land rig
count.
Conference Call
Hydril’s conference call to discuss third
quarter financial results is scheduled for Tuesday, October 31, 2006 at
8:30 a.m. EST, (7:30 a.m. CST) and is accessible by dialing 888-889-5345
(domestic) or 973-935-8516 (international) and referencing passcode
7947198. For further information on the call or the webcast, please
visit the company’s website at www.hydril.com
or see the company’s press release announcing
the earnings conference call dated October 13, 2006.
To the extent not provided in the call, reconciliations of any non-GAAP
financial measures discussed in the call will be available on the
Investor Relations page of Hydril’s website.
Hydril, headquartered in Houston, Texas, is engaged worldwide in
engineering, manufacturing and marketing premium connection and pressure
control products used for oil and gas drilling and production.
Forward-Looking Statements
This press release contains forward-looking statements concerning
expected future results. These statements relate to future events and
the company’s future financial performance,
including the company’s business strategy and
product development plans, and involve known and unknown risks,
uncertainties and assumptions. These risks, uncertainties and
assumptions, many of which are more fully described in Hydril Company’s
Quarterly Report on Form 10-Q for the quarter-ended June 30, 2006 filed
with the Securities and Exchange Commission include but are not limited
to the impact of changes in oil and natural gas prices and worldwide and
domestic economic conditions on drilling activity and demand for and
pricing of Hydril’s products, the risks
associated with fixed-price contracts, the loss of distribution or
change to distribution methods or inventory practices for premium
connections in the U.S. and Canada, competition from steel mills,
limitations on the availability of pipe for threading, the impact of
imports of tubular goods and of international and domestic trade laws,
factors that could cause our results to vary significantly from quarter
to quarter, the consolidation of end-users, intense competition in our
industry, the risks associated with international operations, the
ability to attract and retain skilled labor, and Hydril’s
ability to successfully develop new technologies and products and
maintain and increase its market share. These factors may cause Hydril’s
or the industry’s actual results, levels of
activity, performance or achievements to be materially different from
those expressed or implied by the forward-looking statements.
HYDRIL COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Amounts)
Three Months Ended
Nine Months Ended
(unaudited)
(unaudited)
September 30,
June 30,
September 30,
September 30,
2006
2006
2005
2006
2005
Revenue
Premium Connection
$ 63,785
$ 89,422
$ 62,928
$ 226,756
$ 173,340
Pressure Control
Capital Equipment
32,654
28,513
13,952
80,889
37,732
Aftermarket
20,873
24,179
16,094
65,841
52,326
Subtotal Pressure Control
53,527
52,692
30,046
146,730
90,058
Total Revenue
117,312
142,114
92,974
373,486
263,398
Total Gross Profit
45,408
54,911
41,284
150,198
117,156
Gross Margin
39%
39%
44%
40%
44%
Selling, General, and Admin. Expenses
17,658
18,666
14,109
53,352
42,885
Operating Income (Loss)
Premium Connection
18,691
28,584
22,974
74,801
61,270
Pressure Control
14,484
13,601
8,628
38,458
26,006
Corporate Administration
(5,425)
(5,940)
(4,427)
(16,413)
(13,005)
Total Operating Income
27,750
36,245
27,175
96,846
74,271
Operating Margin
24%
26%
29%
26%
28%
Income (loss) from Unconsolidated Entites
(29)
31
-
(43)
-
Interest Income
2,222
1,891
959
5,583
2,563
Other Income/(Expense)
(81)
(70)
1,318
(250)
1,065
Income Before Income Taxes
29,862
38,097
29,452
102,136
77,899
Provision for Income Taxes
10,196
13,094
9,840
34,798
26,026
Net Income
$ 19,666
$ 25,003
$ 19,612
$ 67,338
$ 51,873
Net Income Per Share:
Basic
$ 0.85
$ 1.05
$ 0.83
$ 2.86
$ 2.21
Diluted
$ 0.84
$ 1.04
$ 0.81
$ 2.82
$ 2.16
Weighted Average Shares Outstanding:
Basic
23,179,508
23,734,236
23,550,685
23,535,230
23,456,702
Diluted
23,521,607
24,151,659
24,121,067
23,915,332
23,993,313
Depreciation
Premium Connection
$ 2,444
$ 2,372
$ 2,181
$ 7,073
$ 6,300
Pressure Control
859
834
797
2,503
2,312
Corporate Administration
405
529
490
1,440
1,496
Total Depreciation
3,708
3,735
3,468
11,016
10,108
Capital Expenditures
7,828
9,320
3,926
22,153
10,690
Pressure Control Backlog
Capital Equipment
$ 289,200
$ 266,357
$ 61,164
HYDRIL COMPANY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
September 30,
June 30,
December 31,
2006
2006
2005
(unaudited)
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents
$ 179,742
$ 187,055
$ 65,145
Investments
9,254
7,557
108,084
Total receivables
76,037
126,916
78,204
Total inventories
79,323
72,255
57,646
Deferred tax asset
9,792
12,330
11,390
Other current assets
4,969
4,781
3,669
Total current assets
359,117
410,894
324,138
LONG-TERM ASSETS:
Property, net
115,693
111,462
105,138
Other long-term assets
15,753
19,954
21,286
Total long-term assets
131,446
131,416
126,424
TOTAL
$ 490,563
$ 542,310
$ 450,562
CURRENT LIABILITIES:
Accounts payable
$ 35,990
$ 43,003
$ 23,443
Accrued liabilities and other current liabilities
89,226
79,384
39,934
Total current liabilities
125,216
122,387
63,377
LONG-TERM LIABILITIES:
Deferred tax liability and other tax obligations
9,594
15,144
12,143
Post retirement, pension benefits and other
17,884
15,040
14,207
Total long-term liabilities
27,478
30,184
26,350
STOCKHOLDERS' EQUITY:
Total stockholders' equity
337,869
389,739
360,835
TOTAL
$ 490,563
$ 542,310
$ 450,562
Hydril (Nasdaq:HYDL) reported earnings for the third quarter ended
September 30, 2006 of $0.84 per diluted share, down 19% sequentially
from $1.04 reported in the second quarter of 2006, and up 4% from
$0.81 reported for the third quarter of 2005.
On a sequential basis, third quarter revenue of $117.3 million
decreased 18%, operating income of $27.8 million was down 23%, and net
income of $19.7 million was down 21%. Compared to the third quarter of
2005, revenue increased 26%, operating income increased 2%, and net
income was essentially flat.
Third quarter financial results reflect deeper than expected
inventory de-stocking by U.S. premium connection distributors. As
expected, premium connection revenue for Venezuela was also down
sequentially as a result of excess inventory built during the first
half of the year. Pressure control results were in-line with
expectations and reflect increasing capital equipment revenue
resulting from progress made on project orders.
Chris Seaver, President and CEO, commented, "In the intermediate
term, the fundamental drivers for our business continue to gradually
improve. We expect U.S. premium connection distributor demand to be
flat in the fourth quarter, and then increase next year as we
anticipate distributor inventories will stabilize near year-end. We
also expect Venezuelan excess inventories to be consumed at about the
same time. Our pressure control capital equipment markets continue to
strengthen as reflected by our increasing backlog and additional
orders for deepwater blowout prevention systems received since the end
of the quarter."
Premium Connection Segment
Sequentially, third quarter revenue for Hydril's premium
connection segment decreased 29% to $63.8 million, operating income
decreased 35% to $18.7 million, and operating margin decreased to 29%
from 32%. The majority of the revenue decline was in the Latin
American market due to an expected inventory correction in Venezuela,
which reduced pipe and threading requirements. In addition, revenue in
the U.S. decreased as a result of distributor inventory de-stocking,
which was greater than previously expected, while end-user consumption
remained stable from the second quarter.
Pressure Control Segment
Third quarter revenue for the pressure control segment increased
2% sequentially to $53.5 million and operating income increased 7% to
$14.5 million. Capital equipment revenue increased 15% sequentially to
$32.7 million, while aftermarket revenue decreased 14% to $20.9
million. The increase in capital equipment revenue was primarily the
result of progress made on offshore blowout prevention system
projects. As expected, aftermarket revenue moderated closer to the
average of the past several quarters. Segment operating margin for the
third quarter was 27%, slightly higher than 26% recorded in the second
quarter.
At September 30, 2006, pressure control capital equipment backlog
was $289 million, up 9% from $266 million at June 30, 2006, and up
from $61 million at September 30, 2005. After the end of the third
quarter, the company received purchase orders for an additional $154
million of deepwater blowout prevention systems.
Share Repurchase Program
During the third quarter, the company purchased $75 million of
stock, which completed the $100 million of share repurchases
authorized by the Board of Directors in March 2006.
Market Indicators
As more fully described on our website at www.hydril.com on the
"Market Indicators" page, our principal business drivers are: (1) the
U.S. rig count for rigs drilling at targets deeper than 15,000 feet,
(2) the number of Gulf of Mexico rigs under contract, (3) the
international rig count, (4) worldwide offshore rigs under contract,
and (5) the total U.S. land rig count.
Conference Call
Hydril's conference call to discuss third quarter financial
results is scheduled for Tuesday, October 31, 2006 at 8:30 a.m. EST,
(7:30 a.m. CST) and is accessible by dialing 888-889-5345 (domestic)
or 973-935-8516 (international) and referencing passcode 7947198. For
further information on the call or the webcast, please visit the
company's website at www.hydril.com or see the company's press release
announcing the earnings conference call dated October 13, 2006.
To the extent not provided in the call, reconciliations of any
non-GAAP financial measures discussed in the call will be available on
the Investor Relations page of Hydril's website.
Hydril, headquartered in Houston, Texas, is engaged worldwide in
engineering, manufacturing and marketing premium connection and
pressure control products used for oil and gas drilling and
production.
Forward-Looking Statements
This press release contains forward-looking statements concerning
expected future results. These statements relate to future events and
the company's future financial performance, including the company's
business strategy and product development plans, and involve known and
unknown risks, uncertainties and assumptions. These risks,
uncertainties and assumptions, many of which are more fully described
in Hydril Company's Quarterly Report on Form 10-Q for the
quarter-ended June 30, 2006 filed with the Securities and Exchange
Commission include but are not limited to the impact of changes in oil
and natural gas prices and worldwide and domestic economic conditions
on drilling activity and demand for and pricing of Hydril's products,
the risks associated with fixed-price contracts, the loss of
distribution or change to distribution methods or inventory practices
for premium connections in the U.S. and Canada, competition from steel
mills, limitations on the availability of pipe for threading, the
impact of imports of tubular goods and of international and domestic
trade laws, factors that could cause our results to vary significantly
from quarter to quarter, the consolidation of end-users, intense
competition in our industry, the risks associated with international
operations, the ability to attract and retain skilled labor, and
Hydril's ability to successfully develop new technologies and products
and maintain and increase its market share. These factors may cause
Hydril's or the industry's actual results, levels of activity,
performance or achievements to be materially different from those
expressed or implied by the forward-looking statements.
-0-
*T
HYDRIL COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Amounts)
----------------------------------------------------------------------
------------------------------------------
Three Months Ended
(unaudited)
------------------------------------------
September 30, June 30, September 30,
2006 2006 2005
------------------------------------------
Revenue
Premium Connection $63,785 $89,422 $62,928
Pressure Control
Capital Equipment 32,654 28,513 13,952
Aftermarket 20,873 24,179 16,094
-------------- ------------- -------------
Subtotal Pressure
Control 53,527 52,692 30,046
Total Revenue 117,312 142,114 92,974
Total Gross Profit 45,408 54,911 41,284
Gross Margin 39% 39% 44%
Selling, General, and
Admin. Expenses 17,658 18,666 14,109
-------------- ------------- -------------
Operating Income (Loss)
Premium Connection 18,691 28,584 22,974
Pressure Control 14,484 13,601 8,628
Corporate
Administration (5,425) (5,940) (4,427)
-------------- ------------- -------------
Total Operating Income 27,750 36,245 27,175
Operating Margin 24% 26% 29%
Income (loss) from
Unconsolidated Entites (29) 31 -
Interest Income 2,222 1,891 959
Other Income/(Expense) (81) (70) 1,318
-------------- ------------- -------------
Income Before Income Taxes 29,862 38,097 29,452
Provision for Income Taxes 10,196 13,094 9,840
-------------- ------------- -------------
Net Income $19,666 $25,003 $19,612
Net Income Per Share:
Basic $0.85 $1.05 $0.83
Diluted $0.84 $1.04 $0.81
Weighted Average Shares
Outstanding:
Basic 23,179,508 23,734,236 23,550,685
Diluted 23,521,607 24,151,659 24,121,067
Depreciation
Premium Connection $2,444 $2,372 $2,181
Pressure Control 859 834 797
Corporate
Administration 405 529 490
-------------- ------------- -------------
Total Depreciation 3,708 3,735 3,468
Capital Expenditures 7,828 9,320 3,926
Pressure Control Backlog
Capital Equipment $289,200 $266,357 $61,164
---------------------------
Nine Months Ended
(unaudited)
---------------------------
September 30,
2006 2005
---------------------------
Revenue
Premium Connection $226,756 $173,340
Pressure Control
Capital Equipment 80,889 37,732
Aftermarket 65,841 52,326
------------- -------------
Subtotal Pressure
Control 146,730 90,058
Total Revenue 373,486 263,398
Total Gross Profit 150,198 117,156
Gross Margin 40% 44%
Selling, General, and Admin.
Expenses 53,352 42,885
------------- -------------
Operating Income (Loss)
Premium Connection 74,801 61,270
Pressure Control 38,458 26,006
Corporate Administration (16,413) (13,005)
------------- -------------
Total Operating Income 96,846 74,271
Operating Margin 26% 28%
Income (loss) from
Unconsolidated Entites (43) -
Interest Income 5,583 2,563
Other Income/(Expense) (250) 1,065
------------- -------------
Income Before Income Taxes 102,136 77,899
Provision for Income Taxes 34,798 26,026
------------- -------------
Net Income $67,338 $51,873
Net Income Per Share:
Basic $2.86 $2.21
Diluted $2.82 $2.16
Weighted Average Shares
Outstanding:
Basic 23,535,230 23,456,702
Diluted 23,915,332 23,993,313
Depreciation
Premium Connection $7,073 $6,300
Pressure Control 2,503 2,312
Corporate Administration 1,440 1,496
------------- -------------
Total Depreciation 11,016 10,108
Capital Expenditures 22,153 10,690
Pressure Control Backlog
Capital Equipment
*T
-0-
*T
HYDRIL COMPANY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
----------------------------------------------------------------------
September 30, June 30, December 31,
2006 2006 2005
------------- ------------- -------------
(unaudited) (unaudited)
-----------------------------------------
CURRENT ASSETS:
Cash and cash equivalents $179,742 $187,055 $65,145
Investments 9,254 7,557 108,084
Total receivables 76,037 126,916 78,204
Total inventories 79,323 72,255 57,646
Deferred tax asset 9,792 12,330 11,390
Other current assets 4,969 4,781 3,669
------------- ------------- -------------
Total current assets 359,117 410,894 324,138
------------- ------------- -------------
LONG-TERM ASSETS:
Property, net 115,693 111,462 105,138
Other long-term assets 15,753 19,954 21,286
------------- ------------- -------------
Total long-term assets 131,446 131,416 126,424
------------- ------------- -------------
TOTAL $490,563 $542,310 $450,562
============= ============= =============
CURRENT LIABILITIES:
Accounts payable $35,990 $43,003 $23,443
Accrued liabilities and
other current
liabilities 89,226 79,384 39,934
------------- ------------- -------------
Total current
liabilities 125,216 122,387 63,377
------------- ------------- -------------
LONG-TERM LIABILITIES:
Deferred tax liability
and other tax
obligations 9,594 15,144 12,143
Post retirement, pension
benefits and other 17,884 15,040 14,207
------------- ------------- -------------
Total long-term
liabilities 27,478 30,184 26,350
------------- ------------- -------------
STOCKHOLDERS' EQUITY:
Total stockholders'
equity 337,869 389,739 360,835
------------- ------------- -------------
TOTAL $490,563 $542,310 $450,562
============= ============= =============
*T