TechnipFMC (FTI) Boosts Buyback: What Else Should You Know?

Bringing in pleasant news for investors, Technip (PA:FTI) FMC plc (NYSE:FTI) recently boosted its stock-buyback program by an additional $300 million, over and above its existing authorization of $500 million.

Notably, the industry downturn had severely impacted revenues and earnings of oilfield service players including TechnipFMC, consequently resulting in slashing of dividend by the company. However, with the energy landscape gradually improving, it resumed its payout from the third quarter of 2017 and also announced to repurchase shares up to $500 million by the end of this year. Very recently, it gave investors another reason to cheer, with a boost in its share repurchase program. Notably, TechnipFMC also boasts a strong balance sheet, with a debt-to-capital ratio of 23.8%, lower than industry’s average of 29.2%, which provides it with ample flexibility to tap on growth opportunities. Moreover, we appreciate the company’s efforts to consistently enhance long-term shareholder value.

An Insight Into 2019 Guidance

In addition to boosting the repurchase program, it also outlined its financial guidance and capex budget for 2019. TechnipFMC projected its 2019 capex at $400 million, up from this year’s estimated level of $300 million.

Importantly, TechnipFMC forecasts its subsea revenues within $5.4-$5.7 billion, reflecting an increase from this year’s guided range of $5-$5.3 billion. Moreover, the Surface Technologies segment is expected to generate revenues within $1.7-$1.8 billion in 2019, up from this year’s forecast of $1.5-$1.6 billion. While the 2019 revenue forecast for these two segments is higher than this year’s estimated levels, the company expects offshore/onshore revenues for the next year in the band of $5.7-$6 billion, which is a tad lower than $5.8-$6.1 billion projected for 2018.

Nonetheless, overall 2019 revenues of the company are expected to rise from the 2018 level. An uptick in inbound orders seems to be the driving factor behind the higher year-over-year revenue forecast. Notably, in the last reported quarter, all the three segments of the company witnessed gains in backlog and order activities. Inbound orders in the quarter came in at $3.6 billion, reflecting a 48% year-over-year increase. In fact, the inbound orders also surpassed sales, in turn brightening prospects for future revenue growth of the company. Importantly, its backlog stands at $15.2 billion, reflecting a steady demand from customers.

However, while the company’s revenue forecast instills optimism, lower EBITDA margin expectation may dent investors’ sentiments. Notably, it expects EBITDA margin of 11% and 12% for its Subsea and Onshore/Offshore segment, down from this year’s margin expectation of 14% and 13%, respectively. The Surface Technology segment, however, expects an EBITDA margin of at least 17% vis a vis this year’s forecast of 16%. Nevertheless, this best-performing segment of the firm is its smallest unit, accounting for just around 12.7% of the company's revenues.

Bottom Line

While the company’s buyback boost, revenue forecasts and strong backlog raise optimism about this Zacks Rank #3 (Hold) firm, its shareholders are still advised to exercise caution, especially after the reduced EBITDA margin guidance. We are also worried about the negative free cash flow of the company over the last four quarters. Moreover, the improving landscape is not likely to filter down to oilfield services soon, as the upstream players are benefiting from discounted dayrates.

Investors interested in the energy sector can opt for some better-ranked stocks given below:

Houston, TX-based Enterprise Products Partners L.P. (NYSE:EPD) holds a Zacks Rank #1 (Strong Buy). The company’s earnings for 2018 are expected to surge more than 36% year over year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Rome, Italy-based Eni S.p.A. (NYSE:E) has a Zacks Rank #1. Its earnings for 2018 are expected to grow more than 100% from the 2017 level.

Houston, TX-based Shell (LON:RDSa) Midstream Partners, L.P. (NYSE:SHLX) carries a Zacks Rank #2 (Buy). The company’s profits for 2018 are expected to grow nearly 20% from 2017.

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