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National Oilwell (NOV) Q4 Earnings Lag, Sales Top Estimates

Zacks Equity Research

National Oilwell Varco, Inc. NOV reported earnings of 3 cents in fourth-quarter 2018, missing the Zacks Consensus Estimate of 8 cents per share. Weaker-than-expected contribution from Wellbore Technologies unit led to this underperformance. Operating profit from the energy equipment maker’s Wellbore Technologies unit totaled $41 million, lagging the Zacks Consensus Estimate of $46.36 million.

However, National Oilwell’s bottom line witnessed a turnaround from the year-ago loss of 4 cents on the back of improved results across all the segments.

Total revenues of $2,398 million topped the Zacks Consensus Estimate of $2,191 million. The top line also rose 21.8% 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. Quote

Segmental Performance

Rig Technologies: Revenues came in at $804 million compared with $614 million in the year-ago quarter, reflecting an increase of 31%. Solid execution of projects and higher aftermarket sales led to the improved performance. Consequently, the unit’s adjusted EBITDA came in at $102 million, 45.7% higher than $70 million recorded in the year-ago quarter.

Wellbore Technologies: The segment’s revenues rose 23.6% year over year to $884 million. Strong demand owing to greater market adoption of the unit’s superior technology services (domestically as well as internationally) drove the top line. The unit’s adjusted EBITDA of $155 million also increased from the year-ago figure of $107 million, aided by higher volumes and improved product mix.   

Completion & Production Solutions: Revenues at the segment were $788 million, up 14.2% from $690 million in the year-ago quarter. Robust capital equipment demand for land production and steady progress with its projects drove the upside. As such, the unit recorded adjusted EBITDA of $112 million, up 51.4% from the year-ago figure of $74 million.

Backlog

Capital equipment order backlog was $3.1 billion as of Dec 31, 2018, including $119 million worth of new orders.

Meanwhile, the Completion & Production Solutions segment’s backlog for capital equipment orders totaled $894 million at the end of the fourth quarter. The figure included $470 million of new orders.

Balance Sheet

As of Dec 31, 2018, the company had cash and cash equivalents of $1.4 billion, and long-term debt of $2.7 billion. The debt-to-capitalization ratio was 16.3%.

Uncertain Prospects Ahead?

With crude prices being on an upward trajectory for most part of 2018, full-year revenues of National Oilwell totaled $8.45 billion, representing more than 25% increase from 2017. However, after touching multi-year highs of $76.40 a barrel in early October, prices slided below $45 in late December amid oversupply concerns and weakening demand. The prices are still hovering around $50-$55 a barrel amid worries about economic slowdown and trade tussles. As such, amid the growing crisis, many exploration and production companies have slashed their capital spending for 2019, which is likely to affect the performance of oilfield equipment providers like National Oilwell. The sharp decline in the oil prices in the last months of 2018 led to a contraction in orders, which is likely to impact the near-term prospects of National Oilwell. In fact, the company itself foresees a sequential fall in revenues from all the three segments.

While things have gradually started looking up for international and offshore markets, the recovery is still not around the corner. While National Oilwell's impressive portfolio of products and services is much appreciated, a tough operating environment and weakness in commodity prices are likely to hamper the Zacks Rank #5 (Strong Sell) company's performance in the coming quarters.

Stocks Worth a Watch

Some better-ranked players in the energy space are Sunoco LP SUN, Golar LNG Partners LP GMLP and YPF Sociedad Anonima YPF. While Sunoco and Golar sport a Zacks Rank #1 (Strong Buy), YPF Sociedad carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Sunoco pulled off average positive earnings surprise of 18.39% in the trailing four quarters.

Golar surpassed earnings estimates in each of the trailing four quarters, with average of 92.75%.

YPF Sociedad delivered average positive earnings surprise of 210.38% in the trailing four quarters.

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