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National Oilwell (NOV) Posts Narrower-Than-Expected Q2 Loss

Zacks Equity Research

National Oilwell Varco, Inc. NOV reported an adjusted loss of 4 cents per share in second-quarter 2019, narrower than the Zacks Consensus Estimate of 7 cents loss. The adjusted figures exclude a goodwill write-down of $5.4 billion. Strong contribution from the Rig Technologies and the Wellbore Technologies segments led to this outperformance.

However, the bottom line fell from the comparable 2018 period profit of 6 cents as North American drillers scale back their production growth plans, leaving less work for the likes of National Oilwell Varco.

Recovery in the international business and cost reductions meant that adjusted EBITDA from the energy equipment maker’s Wellbore Technologies unit totaled $134 million, above the Zacks Consensus Estimate of $129 million.

National Oilwell Varco’s Rig Technologies segment’s adjusted EBITDA of $74 million also came above the Zacks Consensus Estimate of $68 million due to higher contribution from offshore projects and strong aftermarket sales.

Further, adjusted EBITDA from the Completion & Production Solutions segment came in at $52 million, in line with the Zacks Consensus Estimate. The unit benefited from higher offshore and international demand for equipment associated with completion and production.

Total revenues of $2.1 billion beat the Zacks Consensus Estimate by 2.4% and rose 1.2% from the year-ago period.

National Oilwell Varco, Inc. Price, Consensus and EPS Surprise

 

National Oilwell Varco, Inc. Price, Consensus and EPS Surprise

National Oilwell Varco, Inc. price-consensus-eps-surprise-chart | National Oilwell Varco, Inc. Quote

Segmental Performance

Rig Technologies: Revenues came in at $671 million compared with $651 million in the year-ago quarter, reflecting an increase of 3.1% due to increased offshore share and higher sales from aftermarket operations. However, the unit’s adjusted EBITDA was $74 million, 11.9% lower than $84 million recorded in the year-ago quarter, pulled down by decreasing land capital equipment sales.

Wellbore Technologies: The segment’s revenues rose 7.2% year over year to $850 million. Meanwhile, the unit’s adjusted EBITDA of $134 million improved marginally from last year’s $133 million, aided by strict cost controls and improving international activity.

Completion & Production Solutions: Revenues at the segment were $663 million, down 10.2% from $738 million in the year-ago quarter. The unit recorded adjusted EBITDA of $52 million, significantly lower than the year-ago figure of $94 million as customers continue to focus on reducing spending.

Backlog

Capital equipment order backlog for Rig Technologies was $3.2 billion as of Jun 30, 2019, including $310 million worth of new orders.

Meanwhile, the Completion & Production Solutions segment’s backlog for capital equipment orders totaled $1.2 billion at the end of the second quarter. The figure included $548 million of new orders – the most for a quarter in five years.

Balance Sheet

As of Jun 30, 2019, the company had cash and cash equivalents of $1.1 billion and long-term debt of $2.5 billion. The debt-to-capitalization ratio was 22.6%.

What Lies Ahead

National Oilwell management said that the tightness in the North American upstream companies' investment budget has led to a ‘generational oilfield downturn’. While the domestic oil producers are unlikely to increase spending anytime soon, the company sees stronger business internationally, and particularly in offshore. In response to the changing market dynamics, National Oilwell Varco is looking to continue its disciplined approach to capital spending and improve efficiency.

Zacks Rank & Stock Picks

National Oilwell Varco carries a Zacks Rank #3 (Hold).

Some better-ranked players in the energy space are TC Energy Corporation TRP, TechnipFMC plc FTI and Cheniere Energy, Inc. LNG. All the companies carry a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Canada-based TC Energy has an excellent track of outperforming estimates over the last four quarters at an average rate of 14.8%.

The 2019 Zacks Consensus Estimate for London-based TechnipFMC is $1.25, representing some 52.4% earnings per share growth over 2018. Next year’s average forecast is $1.57 pointing to another 25.6% growth.

Cheniere Energy’s expected EPS growth rate for three to five years currently stands at 31.1%, comparing favorably with the industry’s growth rate of 14.7%.

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