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Global large-cap energy equipment maker National Oilwell Varco Inc. (NOV - Analyst Report) reported better-than-expected second quarter earnings, buoyed by rising international demand. Earnings per share (excluding transaction costs and one time gains) came in at $1.34, above the Zacks Consensus Estimate of $1.32

However, NOV’s performance deteriorated considerably from the year-ago adjusted profit of $1.52 per share amid a choppy North American market.

Quarterly revenue jumped 6.9% year over year – from $5,319.0 million to $5,687.0 million – but was just short of the Zacks Consensus Estimate of $5,696.0 million. .

Segmental Performance

Rig Technology: Revenue in the Rig Technology segment increased 11.6% year over year to $2,843.0 million, while revenue out of backlog was up 10% from the corresponding period last year. However, the segment’s operating profit was down marginally (by 0.7% year over year) to $606.0 million.

Rig Technology’s profitability during the quarter was hampered by the soft North American market and price cuts. Operating margin, at 21.3%, dipped from 23.9% in the year-ago period.

Petroleum Services & Supplies: The company’s Petroleum Services & Supplies segment achieved revenues of $1,809.0 million, up 5.4% from the year-ago period, though operating profit declined 15.4% from the third quarter of 2012 to $324 million. Operating margin was 17.9% versus 22.3% in the year-ago quarter. The negative comparisons were due to the slow pace of land drilling purchases.

Distribution & Transmission: Distribution & Transmission revenues climbed 2.6% year over year to $1,342.0 million. Operating profit was $78 million, flat from the year-earlier quarter. The segment results were held up by contribution from the Robbins & Myers acquisition and rising international demand. However, operating margin came in at 5.8%, down from 5.9% in the third quarter of 2012 due to changing mix.

Backlog

Backlog for capital equipment orders for the company’s Rig Technology segment was a record $15,150.0 million at Sep 30, 2013, up 30% from the previous quarter level.

Balance Sheet

At the end of the third quarter, the company had cash on hand of $2,741.0 million and debt of $3,749.0 million. The debt-to-capitalization ratio stood at approximately 14.7%.

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 Matador Resources Co. (MTDR - Snapshot Report) and Northern Oil & Gas Inc. (NOG - Snapshot Report) as good buying opportunities. These domestic upstream energy operators – sporting a Zacks Rank #1 (Strong Buy) – have solid secular growth stories with potential to rise significantly from current levels.
 

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