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National Oilwell (NOV) Reports Wider Q1 Loss, Revenues Miss

Nilanjan Choudhury
ConocoPhillips (COP) generates $2.9 billion of cash from operating activities in first-quarter 2019.

National Oilwell Varco, Inc. NOV reported loss of 20 cents per share in first-quarter 2019, wider than the Zacks Consensus Estimate of 9 cents loss and the year-ago loss of 18 cents. Weaker-than-expected contribution from the all segments led to this underperformance.

Seasonal demand slowdown in international markets and pricing pressure in North America meant that adjusted EBITDA from the energy equipment maker’s Wellbore Technologies unit totaled $117 million, below the Zacks Consensus Estimate of $129 million.

Further, adjusted EBITDA from the Completion & Production Solutions segment came in at $28 million, far from the Zacks Consensus Estimate of $76 million. The miss was on account deferred equipment deliveries.

National Oilwell Varco’s Rig Technologies segment’s adjusted EBITDA of $56 million also came below the Zacks Consensus Estimate of $66 million due to weakness in offshore projects, fewer capital equipment supplies and seasonally lower service and repair work.  

Total revenues of $1.9 billion missed the Zacks Consensus Estimate of $2 billion but rose 8.1% from the year-ago period.

Segmental Performance

Rig Technologies: Revenues came in at $603 million compared with $483 million in the year-ago quarter, reflecting an increase of 24.8%. The unit’s adjusted EBITDA was $56 million, 24.4% higher than $45 million recorded in the year-ago quarter, driven by strong aftermarket revenues.

Wellbore Technologies: The segment’s revenues rose 13.5% year over year to $807 million. The unit’s adjusted EBITDA of $117 million also improved from last year’s $103 million, aided by rebounding commodity prices and activities, together with strong drill pipe sales.

Completion & Production Solutions: Revenues at the segment were $581 million, down 13.3% from $670 million in the year-ago quarter. The unit recorded adjusted EBITDA of $28 million, significantly lower than the year-ago figure of $73 million. While certain projects were pulled forward to the previous quarter, segment results were also impacted by tepid order intake and postponement of deliveries by clients led to the downside.

Backlog

Capital equipment order backlog for Rig Technologies was $3.1 billion as of Mar 31, 2019, including $1271million worth of new orders.

Meanwhile, the Completion & Production Solutions segment’s backlog for capital equipment orders totaled $1 billion at the end of the first quarter. The figure included $470 million of new orders.

Balance Sheet

As of Mar 31, 2019, the company had cash and cash equivalents of $1.3 billion and long-term debt of $2.5 billion. The debt-to-capitalization ratio was 15.2%.

What Lies Ahead

National Oilwell management said that the quarter’s underwhelming performance could be attributed to the twin factors of the tightness in the upstream companies' investment budget due to low year-end crude prices and decline in offshore sales following a bumper fourth quarter that saw accelerated deliveries. Worse, the quantum of new capital equipment order continues to remain weak. However, the company sees improved customer confidence and order acceleration for the remainder of 2019 on oil price rebound.

 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 and Key Picks

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

Meanwhile, investors interested in the energy space could look at some better options like ProPetro Holding Corp. PUMP, Parsley Energy PE and TransCanada Corporation TRP that sport a Zacks Rank #2 (Buy).

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

The 2019 Zacks Consensus Estimate for Midland, TX-based ProPetro is $2.42, representing some 21% earnings per share growth over 2018. Next year’s average forecast is $2.70 pointing to another 11.5% growth.

TransCanada has a 100% track of outperforming estimates over the last four quarters at an average rate of 19%.

The 2019 Zacks Consensus Estimate for Austin, TX-based Parsley is $1,53, representing some 8.5% earnings per share growth over 2018. Next year’s average forecast is $2.47 pointing to another 61.8% growth.

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