NOV Exceeds Zacks Estimate

Earlier today, oilfield service company National-Oilwell Varco (NOV - Analyst Report) reported better-than-expected third quarter results, helped by robust performance from its Rig Technology segment. Earnings per share, excluding transaction and restructuring charges, came in at 95 cents, well above the Zacks Consensus Estimate of 79 cents.
 
However, compared to the corresponding quarter of last year, National-Oilwell Varco’s earnings per share was down more than 34% (from $1.44 to 95 cents), while revenues declined 14.5% to $3.1 billion. The year-over-year negative comparison was due to pricing and sales pressure, in tandem with lower international rig counts.
 
Rig Technology Segment
 
Revenue in the Rig Technology segment increased nearly 4% year over year to $2 billion. Of this, revenues out of backlog were $1.6 billion, up 17% year over year. The segment’s operating profit was up 15.6% year over year to $579 million, while operating margin stood at a record high 29%. Rig Technology segment’s results during the quarter were helped by efficiencies and favorable cost results on large rig construction projects.
 
Petroleum Services & Supplies Segment
 
The company’s Petroleum Services & Supplies segment achieved revenues of $882 million, down 32.7% from the year-ago period. The segment’s operating profit was down significantly from the prior-year period (by almost 74%) to $86 million. Operating margin was 9.8% versus 25.2% in the year-ago quarter. The negative comparisons were due to persistent pricing pressure, reduced purchasing by domestic clients, and a slightly lower international rig count, partially offset by modest rise in the North American rig counts.
 
Distribution Services Segment
 
Distribution Service revenues were down 38.6% year over year to $306 million. Operating profit was $7 million, compared to $43 million in the year-earlier quarter. Operating margin was 2.3%, down 634 basis points year over year. The segment results were dragged down by lower domestic and other international sales, partly canceled by seasonal improvements in Canada.  
 
Backlog
 
During the quarter, National-Oilwell Varco added $333 million of orders to its capital equipment backlog. The company also removed $72 million of discontinued orders on cancelled projects and project change orders requested by customers. Backlog for capital equipment orders for the company’s Rig Technology segment was $7.3 billion at Sept 30, 2009, compared to $8.7 billion at June 30, 2009.
 
Balance Sheet
 
At the end of the quarter, the company had cash on hand of $3.2 billion and long-term debt of $884 million.
 
Outlook
 
Going by the recent economic optimism, we believe that the likelihood of recovery in 2010 is strong, which will improve demand for National-Oilwell Varco's products and services.