Cameron International Corporation (CAM)

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Cameron International (CAM)

Q4 2010 Earnings Call

February 02, 2011 9:30 am ET

Executives

Jack Moore - Chief Executive Officer, President and Director

R. Amann - Vice President of Investor Relations

Analysts

David Anderson - Palo Alto Investors

Brian Uhlmer - Global Hunter Securities, LLC

Alan Laws - BMO Capital Markets U.S.

William Herbert - Simmons

James West - Lehman Brothers

Geoff Kieburtz - Weeden & Co. Research

William Sanchez - Howard Weil Incorporated

Tom Curran - Wells Fargo Securities, LLC

Stephen Gengaro - Jefferies & Company, Inc.

Jeffrey Spittel - Madison Williams and Company LLC

Brad Handler - Wachovia

Jeff Tillery - Tudor, Pickering, Holt & Co. Securities, Inc.

Michael LaMotte - Guggenheim Securities, LLC

Robin Shoemaker - Citigroup Inc

Daniel Boyd - Goldman Sachs Group Inc.

Michael Urban - Deutsche Bank AG

Presentation

Operator

Greetings, ladies and gentlemen, and welcome to the Cameron Fourth Quarter Earnings Conference Call. [Operator Instructions] It is now my pleasure to introduce your host, Mr. Scott Amann, Vice President, Investor Relations for Cameron. Thank you, Mr. Amann. You may begin.

R. Amann

Good morning, and thank you for joining us today. A quick housekeeping note. Due to the rolling power blackouts in the Houston area, Jack and I have actually migrated to a division office this morning to do the conference call because power has been out at our offices since about seven this morning. So those of you expecting e-mails from me of news release or other information, we will get those to you as quickly as we can get back to the office and get power restored. In the meantime, the release should be available on the newswires and it has been posted or is being posted to our website as we speak.

This morning, you will hear from Jack Moore, President and Chief Executive Officer of Cameron. Chuck Sledge, our Senior Vice President and CFO, is out off the office tending to a medical issue in his family. We ask for your good thoughts for him and his family at this time. Jack will offer some commentary on the results for the quarter, and we'll then take time to field your questions.

In accordance with the Safe Harbor provisions of the securities laws, we caution you that some of the statements made on this call may be forward-looking in nature and as such, are subject to various factors not under the control of the company. For a more complete description of these factors and the related risks and uncertainties, please refer to Cameron's annual report on Form 10-K, the company's most recent Form 10-Q and the associated news release.

With that, I will now turn things over to Jack.

Jack Moore

Thank you, Scott, and first, let me say that our thoughts and prayers are with Chuck and his family today, especially with his wife, Liz, as she goes through her surgery this morning. She's in great hands.

Now let's talk about Cameron's fourth quarter and our outlook for 2011. As you've seen, we've printed earnings of $0.69 a share, excluding charges of $0.03 a share, primarily related to the litigation costs associated with Deepwater Horizon and NATCO integration cost. Excluding unusual items, earnings for 2010 came in at $2.42 a share. Now we're done with the acquisition integration costs surrounding NATCO, but we will continue to see Deepwater Horizon cost for the foreseeable future, and we'll continue to call these out separately in future quarters.

Revenues for the quarter were a record $1.8 billion, up 23% versus the prior year. Revenues for 2010 were just north of $6.1 billion, up 17% versus 2009, also a new record. 2010 revenues were primarily driven by record deliveries to subsea equipment, which were up $450 million in 2010. We also benefited from a recovery in our shorter cycle businesses. The primary reason for the increase in earnings in the quarter from our original guidance was improved margins.

EBITDA margins in DPS actually surprised us in the fourth quarter, increasing 80 basis points sequentially despite a 26% increase in subsea revenues. Each of the businesses within DPS improved its EBITDA margin sequentially, reflecting the leverage we got off a 19% increase in revenues sequentially.

V&M's EBITDA increased 80 basis points as well, primarily as a result of improvements in the process and Distributed Valve businesses. However, their margins are still being negatively impacted by low margin work in the Engineered Valve portion of this business. As expected, PCS's EBITDA margin decreased significantly as the third quarter included certain high-margin revenues, which you do not expect to see repeat.

Orders for Q4 totaled just north of $1.7 billion, up from $1.37 billion a year ago as total orders increased for the third quarter in a row. Year-over-year orders were higher in all three of the company's operating groups. Total orders for 2010 were $5.8 billion, a 26% increase over 2009 and the second highest order year in our history. This was achieved without the benefit of any single large subsea project award. DPS orders totaled close to $3 billion supported by a strong finish in subsea in Q4. V&M posted a record level of orders totaling just under $1.6 billion in 2010. And Process and Compression Systems recorded its first $1 billion orders year, actually generating over $1.2 billion in bookings for the year.

Backlog finished the quarter just under $5 billion. We ended the quarter with $1.8 billion of cash and $540 million of negative net debt, so our balance sheet remains as conservative as ever, and we spent $200 million in CapEx in 2010.

As a reminder, our 2.5% converts have been reflected as a current liability as they are callable beginning in June of 2011. In addition, given our current stock price, these instruments can be converted by the holders. Under our debenture, we are allowed to repay the in-the-money portion of the bonds and cash rather than stock, and that's our current intention if any are tendered for conversion. I'll make a few comments on the business units before we discuss our guidance for 2011.

Our Drilling Systems business unit booked the world's first 13 5/8 inch 25,000 psi BOP stack to be delivered in the fourth quarter of 2011. This was sold to McMoRan for their Davy Jones project. I will also note that Cameron is providing all of the 25,000 psi surface wellhead and three systems for this project as well. I must say having two of our divisions engaged in providing such critical technology for this development is a real complement to our engineering and operational teams.

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