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The improvement in the oil industry accelerated in the second quarter thanks to higher crude prices, which in turn fueled demand for oil-field equipment. That trend benefited oil-field equipment distributor NOW Inc. (NYSE: DNOW), driving its revenue and earnings up sharply in what is typically a seasonally slower quarter. Because of that, the company expects strong revenue growth to continue for the balance of the year.
NOW results: The raw numbers
Adjusted net income
Data source: NOW Inc.
Image source: Getty Images.
What happened with NOW this quarter?
Red-hot growth in the U.S. led the way:
Revenue was up sharply versus the year-ago period and increased about 2% from the first quarter, which is worth noting since Q2 is a seasonally softer one due to the steep slowdown in activity in Canada resulting from the "spring break-up" -- the industry's term for the period when the ground frost melts, turning solid earth into a muddy mess, and making it treacherous and expensive to move heavy equipment.
Canada's activity slowdown nicked sales during the quarter; revenue from that country declined 26% sequentially and 5% year over year to $75 million. However, NOW more than made up in the U.S., where revenues rose 7% sequentially and 25% year over year to $600 million. Finally, other international sales also improved, rising 2% from last quarter and 12% from the year-ago period to $102 million.
That revenue improvement enabled NOW to record its third consecutive adjusted quarterly profit, which was up sharply both year over year and sequentially.
What management had to say
CEO Robert Workman praised his company's performance, stating,
I couldn't be more excited about the results our organization produced in the second quarter. Product margin expansion fueled sequential revenue growth, in what is generally a seasonally softer quarter due to Canadian break-up. This, coupled with our continued focus on efficiencies, drove incrementals of 100% sequentially, as EBITDA excluding other costs grew $13 million, matching revenue growth.
Workman pointed out that margins expanded significantly during the quarter, which helped fuel its impressive financial performance. One driver was strong midstream sales growth in the U.S., thanks in part to increased drilling activity in the Permian Basin, as well as from improvements in other shale regions such as the Bakken, Eagle Ford, and the Rockies due to higher oil prices. The company also noted that projects in China, Indonesia, and countries that were formerly parts of the Soviet Union helped boost international sales.
NOW continues to expect revenue growth in the high-teens percentage range for the full year. Meanwhile, it noted that it's starting to see some longer-term positives that could drive sales growth in the coming years, including large-scale projects in Canada that are slowly moving forward, and an improvement in offshore drilling activity, especially in Norway. The company believes it's well positioned to exploit many of these market opportunities as they emerge.
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