Team Inc. Misses on Profits in Q1, Lowers Full Year Fiscal 2014 Guidance

Andrew Klips  |

After four straight green days, shares of Team, Inc. (TISI) are falling back to June levels after the specialty industrial service company reported handily missing first quarter earnings and lowering its fiscal year 2014 outlook. 

For the fiscal first quarter ended August 31, Sugar Land, Texas-based Team reported revenue of $174.31 million, up 8 percent from $161.49 million in the same quarter last year.  Earnings sunk 40 percent to only $4.48 million, or 21 cents per share, compared to $7.66 million, or 36 cents per share in last year’s quarter.  Adjusted for non-routine severance costs, profits were $4.98 million, or 23 cents per share, versus 36 cents per share in last year’s quarter.

Wall Street was expecting EPS of 36 cents on revenue of $176.7 million.  Analysts typically do not include one-time costs, but clearly were expecting far higher profits.

Team mostly blamed its soft profits on a seasonally weak quarterly performance from its Quest Integrity Group, which delivered $3.7 million, or 11 cents per share, less in operational profit during the recent quarter, compared to last year.  The company added the less-than-expected profits were because of project delays and that Quest’s full year prospects are “very attractive” with expected revenue growth.

Team’s services include inspection and repair of pipes and valves utilized extensively in the refining, petrochemical, power, pipeline and other heavy industries.  The company has been experience double-digit growth in recent years, but has fallen under pressures in the last two quarters, particularly on declining sales in Europe and Canada.

Inspection and heat treating and mechanical services combined posted 10-percent revenue growth, but operating profits declined on tighter margins.

Team’s gross margin declined from $49.54 million last year to $49.0 million.  Selling, general and administrative expenses increased 11.5 percent to $41.34 million.

Overall, constricting margins resulted in Team dropping its earnings guidance for the fiscal year.   The company now sees profits of $1.55 to $1.85 per share, versus its prior view of $1.90 to $2.05 per share.  Full-year revenue was also slightly lowered to a range of $765 million to $790 million, compared to its prior guidance between $775 million and $800 million.

On a positive note, Quest’s board has approved a $25 million share repurchase program.  As of Tuesday’s closing price at $40.00, the program is for about 3 percent of the company’s total outstanding shares.

"We remain confident of our long-term growth and performance potential in spite of the near-term margin head-winds and the slow start for Quest. The initial $25 million stock repurchase program approved by our Board of Directors reflects this confidence," said Phil Hawk, chairman and chief executive at Team.

Shares of TISI fell in extended trading with the earnings miss, sinking about 10 percent from the closing price to $35.95.  In 2013, shares were up about 5 percent through Tuesday’s close.

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