Forum Energy Technologies, Inc. reported third-quarter results in line with its pre-announced guidance. Toward the end of the quarter, Forum Energy Technologies pushed investors toward the low end of its guidance range issued at the beginning of the year based on the continuing weakness in rig counts and activity levels. Guidance currently calls for $0.33 to $0.38 for the fourth quarter and $1.83 to $1.88 for the full year. The revised 2012 guidance reflects the recent steep decline in the North America drilling activity and rig count and some subsea orders that may get delayed until early 2016.
Management expects customer spending to remain weak in the fourth quarter and for customers to take more breaks than usual around the holidays and year end. This lack of urgency will result in the deferment of orders into 2013; this lack of urgency crosses multiple product lines, but it is not unique to Forum. The long-term demand trends around deepwater activity, valve-intensive infrastructure projects, and completion activity in oily basins as well as increased activity in offshore and international areas should help investors look past the temporary North American setback.
Management expects improvement around mid-year 2016 for its flow control and fluid businesses; management believes the fourth quarter will probably mark the bottom of orders. We project a weak recovery trajectory given the magnitude of the declines in recent months compared with our expectations, and with what we believe most management teams expected back on the second-quarter earnings calls.
Drilling and subsea. Deepwater rigs deployments in 2013 and beyond continue to extend the growth runway for Forum. Nearly 60% of revenues come from drilling and subsea, and although it is tough to determine how much consists of subsea, we could see this percentage push up over the next few years as deepwater rigs continue rolling out and possibly provide upside to numbers compared with current consensus. The demand outlook for remotely operated vehicles (ROVs) remains strong, and we expect third- quarter deferred orders to show up in the fourth quarter and in early 2016. Management said it probably needs to add capacity to keep up with long-term order trends, which would be a good move, in our view, as deepwater completions begin ramping up in mid- 2016. Gulf of Mexico activity remains robust and should be a nice tailwind in 2016.