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From the U.S., RPC shares drop as Q4 profits fall short, warns of "challenging" times

Thursday, January 26, 2012 by Proactive Investors
From the U.S., RPC shares drop as Q4 profits fall short, warns of 'challenging' times

RPC (NYSE: RES) reported a rise in fourth quarter profit Wednesday as revenues increased 47.1 percent, but results came in below estimates as the company also warned that low natural gas prices could hit its prices as customers cut back on production.

For the three months to December 31, 2011, the provider of specialized oilfield serives and equipment, said net income was $74.58 million, or 51 cents per share, compared to 55.47 million, or 38 cents per share, a year earlier.

Adjusted for a three-for-two stock split, earnings were 34 cents per share, versus 25 cents a year ago.

Revenues increased 47.1 percent to $482.78 million on an increase in the fleet of equipment, improved utlization across most service lines, and better pricing, the company said.

Analysts had expected the company to earn 63 cents per share on revenue of $534.3 million, according to Thomson Reuters.

Its technical services segment, which provides production and maintenance services, saw revenues rise 50.6 percent for the quarter on higher activity levels from customers, as well as improved pricing in all of the service lines in this unit, among other reasons, the company said.

Technical services include anything from pressure pumping to surface pressure control equipment, well control, and fishing tool operations. These services generally work to improve the flow of oil and natural gas from producing formations or to address well control issues.

The company's support services segment saw revenues grow by 16.5 percent during the quarter compared to the prior year, mainly due to better pricing in the rental tool service line - the largest service line in the unit.

The equipment and services offered in this division include rental of drill pipe and related tools, pipe handling, inspection and storage services as well as oilfield training services.

Operating profit in both units improved due to higher revenues, improved pricing, and cost leverage, the company added.

But selling, general and administrative expenses rose 33.9 percent to $42.08 million in the fourth quarter, due to increases in total employment costs.

During the quarter, the company said it invested $111 million in new equipment and capitalized maintenance.

Higher labour and raw materials costs resulted in lower operating margins for the quarter compared to a year ago.

"Compared to the third quarter of 2011, RPC's consolidated revenues decreased by 3.9 percent during the fourth quarter of 2011," said president and CEO, Richard A. Hubbell.

"The factors contributing to this sequential decline included longer than normal holiday breaks among several large customers, activity deferrals due to various raw material shortages, and customer delays resulting from the transition between large projects.

"While some of these factors are believed to be transitory, several of these issues, such as procurement of raw materials, remain challenging.

"As we begin the first quarter of 2012, we note that the average U.S. domestic rig count during the fourth quarter increased by a relatively low 3.1 percent compared to the third quarter of this year, and the average price of natural gas decreased by 20.6 percent.

"We are concerned about these trends, and are monitoring the natural gas-focused basins in which we operate for signs of slowing customer activity and the impact on pricing for our services."

Still, the company's board voted to increase its dividend by 20 percent to 12 cents per share.

For the full year 2011, the company reported net income of #296.38 million, or $2.02 per share, versus $146.74 million, or $1.00 per share, a year earlier. Adjusted earnings came in at $1.35 per share, on revenues of $1.8 billion, up 65.1 percent.

Shares of RPC tumbled over 6.3 percent Wednesday, to $16.42 as of 12:25pm ET.

 

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