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National Oilwell (NOV) Q3 Earnings & Revenues Miss Estimates

Zacks Equity Research

National Oilwell Varco, Inc. NOV incurred an adjusted loss of 61 cents per share in third-quarter 2019, declining from the Zacks Consensus Estimate for earnings of 10 cents. The bottom line also came in against the break-even earnings of the year-ago quarter as North American drillers scale back their production growth plans, leaving less scope of work for the likes of National Oilwell Varco. Particularly, weaker-than-expected revenue contribution from the Rig Technologies and the Wellbore Technologies segments caused this underperformance.

Rig Technologies segment’s revenues of $649 million missed the Zacks Consensus Estimate of $686 million due to lower North American onshore capital equipment sales.

Further, revenues from the Wellbore Technologies segment came in at $793 million, significantly below the Zacks Consensus Estimate of $839 million. The unit’s disappointing performance is due to soft demand for the unit’s products and services in a contracting North American market.

Moreover, total revenues of $2.13 billion lagged the Zacks Consensus Estimate of $2.17 billion and also dipped 0.9% from the year-ago period.

Segmental Performance

Rig Technologies: Revenues came in at $649 million compared with $637 million in the year-ago quarter, reflecting a 1.8% increase owing to higher offshore rig activity and better sales from aftermarket operations. Moreover, the unit’s adjusted EBITDA was $105 million, up 34.61% from $78 million in the year-ago quarter. This gain is backed by the company’s cost-cutting initiatives.

Wellbore Technologies: Segmental revenues fell 6.3% year over year to $793 million as a result of reduced drillpipe deliveries and waning demand for the unit’s short-cycle products. Meanwhile, the unit’s adjusted EBITDA of $133 million slipped from last year’s $135 million.

Completion & Production Solutions: Revenues at the segment were $728 million, down 1% from $735 million in the year-earlier quarter. The unit recorded adjusted EBITDA of $82 million, which is 17.2% lower than the year-ago figure of $99 million as customers continue to focus on minimal spending.

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

Backlog

Capital equipment order backlog for Rig Technologies was $3.14 billion as of Sep 30, 2019 including $221 million worth of new orders.

Meanwhile, the Completion & Production Solutions segment’s backlog for capital equipment orders totalled $1.3 billion at the end of the third quarter. The figure included $535 million worth of new orders.

Balance Sheet

As of Sep 30, 2019, the company had cash and cash equivalents of $1.31 billion and long-term debt of $2.48 billion. The debt-to-capitalization ratio was 23.4%.

Meanwhile, National Oilwell’s third-quarter cash flow is the strongest in more than three years, courtesy of efficient capital program management.

What Lies Ahead

While the domestic oil producers are unlikely to increase their spending anytime soon, the company sees stronger offshore and aftermarket business. In response to the changing market dynamics, National Oilwell Varco is looking to sustain its disciplined approach to capital spending and improving its efficiency level.

Zacks Rank & Key Picks

National Oilwell has a Zacks Rank #3 (Hold). Some better-ranked players in the energy space are Dril-Quip, Inc.DRQ, TC Energy TRP and Sunoco LP SUN, all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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