National Oilwell Earnings Beat on Oilfield Equipment Demand

Zacks Equity Research

Global large-cap energy equipment maker National Oilwell Varco Inc. (NOV) reported strong second-quarter 2014 earnings, buoyed by growing demand for oilfield equipment.

Earnings per share (excluding one-time items) came in at $1.61, surpassing the Zacks Consensus Estimate of $1.45 and improving from the year-ago adjusted profit of $1.39.
 

National Oilwell Varco, Inc - Earnings Surprise | FindTheBest

 

Quarterly revenues increased 12.3% year over year from $4,680.0 million to $5,255.0 million but fell short of the Zacks Consensus Estimate of $5,631.0 million.  

Segmental Performance

Up to the first quarter of 2014, the company operated through three segments: Rig Technology, Petroleum Services and Supplies, and Distribution & Transmission. From the quarter under review, National Oilwell has started to report its operations through four segments, namely Rig Systems, Rig Aftermarket, Wellbore Technologies and Completion & Production Solutions.

Rig Systems: Revenues came in at $2,372.0 million, up 14.0% from the year-ago quarter, while revenue from backlog was $2,070.0 million. Moreover, the unit’s operating profit increased significantly (by 27.5% year over year) to $501.0 million. Operating margin, at 21.1%, also came ahead of 18.9% in the year-ago period. Oilfield equipment’s significant demand during the quarter aided the results.

Rig Aftermarket: The segment generated revenues of $785.0 million, up 17.2% from the year-ago period, while operating profit improved 14.8% from the second quarter of 2013 to $217.0 million. However, operating margin was 27.6%, reflecting a decline from 28.2% in the year-ago quarter.

Wellbore Technologies: The segment’s revenues climbed 18.3% year over year to $1,446.0 million. Operating profit was $269.0 million, up 38.0% from the year-earlier quarter. Operating margin for the unit came in at 18.6%, up from 16.0% in second-quarter 2013.

Completion & Production Solutions: Revenues for the segment were recorded at $1,127.0 million, up 6.6% from $1,057.0 million in the year ago quarter, owing to higher demand for completion and production equipment. On the flip side, the unit’s operating profit came in at $158.0 million, down 3.1% year over year. Moreover, operating margin was 14.0%, lower than 15.4% in the year ago quarter.        

Backlog

Capital equipment orders’ backlog for Rig Systems was $15,390 million as of Jun 30, 2014, up 20.0% from the corresponding quarter last year.

Moreover, Completion & Production Solutions segment reported a backlog of $2,140.0 million in capital equipment order as of Jun 30, 2014. The figure increased 44.0% from the year ago quarter.

Balance Sheet

At the end of the second quarter, the company had cash on hand of $3,885.0 million and long-term debt of $3,148.0 million. The debt-to-capitalization ratio stood at approximately 12.8%.

Zacks Rank & Stock Picks

National Oilwell Varco currently retains a Zacks Rank #4 (Sell), implying that it is expected to underperform the broader U.S. equity market over the next one to three months.

Meanwhile, one can look at better-ranked players in the same industry like Cameron International Corporation (CAM), Weatherford International plc (WFT) and Dril-Quip Inc. (DRQ). Cameron and Weatherford sport a Zacks Rank #1 (Strong Buy), while Dril-Quip carries a Zacks Rank #2 (Buy).

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