Why Is FMC Technologies (FTI) Down 53.7% Since Last Earnings Report?

It has been about a month since the last earnings report for FMC Technologies (NYSE:FTI). Shares have lost about 53.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is FMC Technologies due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

TechnipFMC Misses on Q4 Earnings and Revenues

TechnipFMC plc. reported fourth-quarter 2019 adjusted EPS of 3 cents, falling well short of the Zacks Consensus Estimate of 43 cents.

The underperformance can be primarily attributed to lower-than-anticipated profits from the Onshore/Offshore segment – the major contributor to the company’s top and bottom line. Precisely, adjusted EBITDA from the unit totaled $259.7 million, lagging the Zacks Consensus Estimate of $296 million.

However, the bottom line turned around from the year-earlier quarter's adjusted loss of 9 cents on strong contribution from the Surface Technologies segment, whose adjusted EBITDA of $55.9 million beat the Zacks Consensus Estimate of $42 million.

Meanwhile, for the quarter ended Dec 31, the company’s revenues of $3.7 billion missed the Zacks Consensus Estimate by 3.8% but increased 12.2% from $3.3 billion a year ago.

In the fourth quarter, TechnipFMC’s inbound orders fell by 7.1% compared to the year-ago period, to $2.7 billion. But there was considerable improvement in inbound order receipts for the full-year 2019, which surged by 58.8% to $22.7 billion – a signal of improving revenue visibility.

The company’s backlog is up too. As of year-end 2019, TechnipFMC’s order backlog stood at $24.3 billion, improving by 66.6% from 2018.

Segment Analysis

Subsea: The segment’s revenues in the quarter under review were $1.5 billion, up 20.6% from the year-ago sales figure of $1.2 billion with project and service activities on the rise. Meanwhile, adjusted EBITDA was reported at $185 million, a 24.6% year-over-year improvement on lower costs and project completions. Quarterly inbound orders jumped 33.1% to $1.2 billion, while backlog rose 36.7%.

Onshore/Offshore: This segment generated revenues of $1.8 billion, increasing 9.6% from the prior-year quarter. Revenues were driven by TechnipFMC’s portfolio of process technologies, as well as robust activity in Europe, Asia and North America. In the fourth quarter of 2019, the company reported that this unit reported $259.7 million in adjusted EBITDA, up from $217.2 million in the prior-year quarter. Management attributed this upswing to strong project execution, particularly in the Yamal LNG project. Inbound orders were down 30.8% to $1.1 billion but the Onshore/Offshore backlog jumped 89.1% year over year to $15.3 billion at the end of the quarter.

Surface Technologies: The company’s smallest segment – Surface Technologies – recorded revenues of $407.6 million, down 2.3% year over year, primarily due to slowdown in North American completions activity. This was partly offset by higher revenues from the international energy markets. Adjusted EBITDA was down 13.9% to $55.9 million on volume and pricing woes in North America. The segment’s inbound orders edged down 0.8%, while year-end backlog inched up 0.7%.

Financials

In the reported quarter, TechnipFMC spent $86 million on capital programs, bringing the full-year total to $454.4 million. Meanwhile, cash flow from operations for the quarter and the year came in at $559.1 million and $849 million, respectively. In 2019, the company paid out $233 million as dividends to shareholders, while buying back $93 million worth its own shares. As of Dec 31, the company had cash and cash equivalents of $5.2 billion and a long-term debt of $4 billion with a debt-to-capitalization ratio of 34.2%.

2020 Guidance

TechnipFMC provided 2020 guidance for its operating segments. The company expects revenues from the Subsea, Onshore/Offshore and Surface units within $6.2-$6.5 billion, $7.5-$7.8 billion and $1.4-$1.6 billion, respectively. Further, TechnipFMC has set minimum EBITDA margins targets of 11%, 10% and 12% for the abovementioned segments. This year, the company expects to shell out $450 million as capital expenditures, while cash flow from operating activities should be more than $1 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -5.96% due to these changes.

VGM Scores

At this time, FMC Technologies has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, FMC Technologies has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.