How big of an issue is the expected margin drop will be? I'd really appreciate your knowledgeable comments. Thanks.
National Oilwell Varco Inc. (NOV), the largest U.S. maker of oilfield equipment, fell the most in four months after forecasting a drop in margin at its second-largest unit.
National Oilwell Varco, based in Houston, fell 4.3 percent to $73.51 at 1:22 p.m. in New York, after earlier declining 4.5 percent, the biggest intraday drop since June 25.
The petroleum services and supplies unit, which makes consumable gear for the oilfield such as drilling fluids, pipes and bits used to carve a well, is “likely” to report an operating profit margin as low as 20 percent in the fourth quarter, Chief Financial Officer Clay Williams told analysts and investors today on an earnings conference call.
“That is the major issue as that segment was the upside driver” for next year, Brian Uhlmer, an analyst at Global Hunter Securities in Houston, wrote today in an e-mail.
The unit, which is the company’s second-largest in terms of sales and profit, reported a third-quarter margin of 22.3 percent, the company said today in a statement before regular trading.
The expectations for a decline in margin are the result of pressure from customers for lower prices, Williams said. About 60 percent of the unit’s third-quarter revenue came from North America, he said.
Service and equipment providers are seeing decreased business in the U.S. and Canada due to an oversupply of hydraulic-fracturing equipment and a concern from producers over spending levels.