National Oilwell Varco gets lower stake in Glenview Capital
Glenview Capital Management: How its 4Q14 portfolio changed (Part 11 of 12)
Glenview Capital and National Oilwell Varco
In 4Q14, Glenview Capital Management lowered its position in National Oilwell Varco (NOV). The fund holds 2,613,531 shares of NOV, which accounts for 0.86% of the fund’s total 4Q14 portfolio. down from 1.93% of the fund’s 3Q14 portfolio with 4,855,731 shares.
Overview of National Oilwell Varco
National Oilwell Varco (NOV) is a US company that provides oilfield services, equipment, and parts for oil and gas drilling and production. It operates its business in the following four segments:
Rig Systems
Rig Aftermarket
Wellbore Technologies
Completion and Production Solutions
The company completed a spinout of its distribution business in May 2014. NOV conducts its operations in ~900 locations across six continents.
Current oil downturn impacts book-to-bill ratio
In its 4Q14 earnings call, National Oilwell Varco stated, “As we look forward, we face a tough market with oil prices down more than 50%. Our customers are quickly cutting spending and a downturn we face will be severe in 2015 and possibly beyond.”
In 4Q14, the company’s Rig Systems segment posted new orders of $470 million, reflecting a book-to-bill ratio of 21%. Book-to-bill ratio indicates the number of orders outstanding against the number of orders shipped. For the Completion and Production Solutions segment, book-to-bill ratio was 60% on $469 million in orders.
NOV plans to reduce capital expenditure
To deal with current lower demand from customers due to lower oil prices, NOV is planning to cut capital expenditure by 15% in 2015. Its peer Baker Hughes (BHI) also announced reduction of capital expenditure by 20% for 2015. Halliburton Company (HAL) expects capital expenditure to be in line with the previous year.
Fourth quarter reflects “very little of the impending downturn”
NOV’s fourth quarter revenue was up 2% sequentially and 8% year-over-year to $5.7 billion. Rig Systems revenue was $2.6 billion, down 4% sequentially and up 7% year-over-year. Rig Aftermarkets revenue was $850 million, up 2% sequentially and 12% year-over-year.
The Wellbore Technologies segment posted record revenue of $1.5 billion, up 4% sequentially and 11.5% year-over-year. Completion and Production Solutions revenue was $1.3 billion, up 11% sequentially and up 15% year-over-year. Operating profit margin was highest for Rig Aftermarkets with 28.8%, followed by Rig Systems with 20%.
Diluted earnings per share (or EPS) was $1.39 compared to $1.47 in 4Q13. Adjusted EPS was $1.69, up 4% sequentially and 13% year-over-year. It was adjusted for asset impairment charges.
For 2014, GAAP (generally accepted accounting principles) EPS was $5.82. Adjusted GAAP EPS was up 12% to $6.07.
In its 4Q14 earnings call, NOV said, “The record fourth-quarter results that we just announced reflect very little of the impending downturn.”
Returns to shareholders
NOV increased its dividends, lifting the dividend payout ratio to 30%. The company also announced a $3 billion share repurchase program in September 2014. It reduced share count by 2.7% by repurchasing 11.6 million shares for $779 million. It still has $2.2 billion in its buyback program.
You can invest in National Oilwell Varco (NOV) by investing in the Market Vectors Oil Services ETF (OIH) and the Energy Select Sector SPDR Fund (XLE). NOV accounts for 7.49% and 1.83% of OIH and XLE, respectively.
In the next part of this series, we’ll see how much Glenview Capital Management lowered its position in Applied Materials, Inc. (AMAT).
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