Global large-cap energy equipment maker National Oilwell Varco Inc. (NOV) reported better-than-expected first quarter earnings, helped by robust activity levels, as well as good project execution skills and manufacturing efficiency. All the company’s segments managed to improve their revenues and operating profit over the year-ago period.
Earnings per share (excluding transaction costs) came in at $1.44, comfortably above the Zacks Consensus Estimate of $1.39 and the year-ago adjusted profit of $1.00. Quarterly revenue rose 36.8% year-over-year – from $3,146.0 million to $4,303.0 million – but was marginally below our projection of $4,311.0 million.
Rig Technology: Revenue in the Rig Technology segment increased 40.5% year over year to $2,259.0 million, while revenue out of backlog was up 52% from the corresponding period last year.
The segment’s operating profit was up 30.6% year over year to $551 million. Rig Technology’s profitability during the quarter was helped by higher demand for capital equipment used for newbuild offshore rigs. Operating margin, at 24.4%, however, dipped from 26.2% in the year-ago period.
Petroleum Services & Supplies: The company’s Petroleum Services & Supplies segment achieved revenues of $1,704.0 million, up 34.7% from the year-ago period, while operating profit rose 57.7% from the first quarter of 2011 to $388 million.
Operating margin was 22.8% versus 19.4% in the year-ago quarter. The positive comparisons were due to higher demand for products and services provided by the segment, buoyed by improved oilfield activity.
Distribution & Transmission: Distribution & Transmission revenues were up 37.6% year over year to $564 million. Operating profit was $43 million, compared to $28 million in the year-earlier quarter. Operating margin was 7.6%, up from 6.8% in the first quarter of 2011. The segment results were helped by strong gains in U.S. operations on the back of higher rig counts.
Backlog for capital equipment orders for the company’s Rig Technology segment was $10,360.0 million at March 31, 2012, up 2% from the previous quarter level.
At the end of the first quarter, the company had cash on hand of $3,390.0 million and debt of $510 million. The debt-to-capitalization ratio stood at approximately 2.7%.
Rating & Recommendation
National Oilwell Varco, which ranks ahead of Cameron International Corp. (CAM) as the biggest U.S. maker of oilfield equipment, is currently a Zacks #3 Rank (Hold) stock, implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months. We are also maintaining our long-term Neutral recommendation on the stock.
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