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National Oilwell Beats Overall

NOV CAM

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Oilfield services company National Oilwell Varco (NOV - Analyst Report) reported stellar fourth quarter and full year 2011 results, helped by robust activity levels across all business segments and benefits from the Ameron acquisition.

Earnings per share (excluding transaction charges) came in at $1.37, comfortably above the Zacks Consensus Estimate of $1.30 and the year-ago profit of $1.05.

For full-year 2011, the company earned $4.77 per share, up 16.6% from $4.09 in the prior year. The reported results also surpassed our earnings projection of $4.69.

Quarterly revenue rose 34.3% year over year – from $3,172.0 million to $4,259.0 million – and was 6.4% above our projection.

National Oilwell generated revenues of $14,658 million in fiscal 2011, compared with $12,156 million in 2010. The fiscal result also breezed past the Zacks Consensus Estimate of $14,400 million.

Segmental Performance

Rig Technology: Revenue in the Rig Technology segment increased 31.8% year over year to $2,316.0 million in the quarter, while revenue out of backlog was up 40% from the corresponding period last year.

The segment’s quarterly operating profit was up 20.4% year over year at $603 million. Rig Technology’s profitability during the quarter was helped by higher demand for aftermarket parts, services and capital spares. Operating margin, at 26.0%, however, dipped from 28.5% in the year-ago period.

Petroleum Services & Supplies: The company’s Petroleum Services & Supplies segment achieved revenues of $1,570.0 million, up 38.1% from the year-ago period, while operating profit rose 77.1% from the fourth quarter of 2010 to $301 million.

Operating margin was 19.2% versus 15.0% in the year-ago quarter. The positive comparisons were due to strong contributions from the Fiberglass Composite Pipe segment of Ameron (acquired during the quarter).

Distribution Services: Distribution Service revenues were up 32.4% year over year at $560 million in fourth quarter. Operating profit was $45 million, compared to $30 million in the year-earlier quarter. Operating margin was 8.0%, up from 7.1% in the fourth quarter of 2010. The segment results were helped by strong performance in the Water Transmission and Infrastructure Products segments of Ameron.

Backlog

During the quarter, National Oilwell Varco added a record $1,670.0 million worth of orders to its capital equipment backlog.

Backlog for capital equipment orders for the company’s Rig Technology segment was $10,160.0 million at December 31, 2011, almost double the prior-year quarter level.

Balance Sheet

As of December 31, 2011, the company had cash on hand of $3,535.0 million and long-term debt of $510 million. The debt-to-capitalization ratio stood at approximately 2.8%.

Our Recommendation

National Oilwell Varco, which ranks ahead of Cameron International Corp. (CAM - Analyst Report) as the biggest U.S. maker of oilfield equipment, currently retains a Zacks #2 Rank, which translates into a short-term Buy rating.

We have an optimistic outlook on National Oilwell’s performance for 2012, based on its sound financial profile, solid backlog and an efficient management team. The company’s large installed base of rigs worldwide provides for a steady recurring revenue stream through demand for maintenance, parts and other expendable products.

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