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Global large-cap energy equipment maker National Oilwell Varco Inc. (NOV - Analyst Report) reported weak second quarter earnings, hamstrung by seasonal decline in Canada and a choppy North American market.

Earnings per share (excluding transaction costs) came in at $1.33, a penny below the Zacks Consensus Estimate and considerably lower than the year-ago adjusted profit of $1.46.

The latest miss marks NOV’s second underperformance in as many quarters. It is also as per our expectation, due to the combination of NOV’s Zacks Rank #3 (Hold) and -0.75% ESP (Read: Zacks Earnings ESP: A Better Method).

However, quarterly revenue jumped 18.3% year over year – from $4,734.0 million to $5,601.0 million – and was also above the Zacks Consensus Estimate of $5,452.0 million amid rising international demand.

Segmental Performance

Rig Technology: Revenue in the Rig Technology segment increased 17.8% year over year to $2,833.0 million, while revenue out of backlog was up 17% from the corresponding period last year. The segment’s operating profit was up 2.8% year over year to $587.0 million.

Rig Technology’s profitability during the quarter was helped by higher demand for capital equipment used for newbuild offshore rigs. Operating margin, at 20.7%, however, dipped from 23.7% in the year-ago period due to price cuts.

Petroleum Services & Supplies: The company’s Petroleum Services & Supplies segment achieved revenues of $1,749.0 million, down 1.5% from the year-ago period, while operating profit declined 22.7% from the second quarter of 2012 to $304 million. Operating margin was 17.4% versus 22.1% in the year-ago quarter. The negative comparisons were due to the seasonal downturn in Canada.

Distribution & Transmission: Distribution & Transmission revenues climbed 66.0% year over year to $1,295.0 million. Operating profit was $71 million, compared with $54 million in the year-earlier quarter. The segment results were helped by a full quarter’s contribution from the Robbins & Myers acquisition and rising international demand. However, operating margin came in at 5.5%, down from 6.9% in the second quarter of 2012 due to Canada breakup.

Backlog

Backlog for capital equipment orders for the company’s Rig Technology segment was a record $13,950.0 million at Jun 30, 2013, up 24% from the previous quarter level.

Balance Sheet

At the end of the second quarter, the company had cash on hand of $2,327.0 million and debt of $4,120.0 million. The debt-to-capitalization ratio stood at approximately 16.4%.

Zacks Rank & Stock Picks

NOV, which ranks ahead of Cameron International Corp. (CAM - Analyst Report) as the biggest U.S. maker of oilfield equipment, currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can look at Dril-Quip Inc. (DRQ - Analyst Report) and Natural Gas Services Group Inc. (NGS - Snapshot Report) as good buying opportunities. These energy equipment service providers – sporting a Zacks Rank #1 (Strong Buy) – have solid secular growth stories with potential to rise significantly from current levels.

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