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Global large-cap energy equipment maker National Oilwell Varco Inc. (NOV - Analyst Report) reported impressive second quarter 2012 earnings, helped by robust activity levels globally and benefits of recent acquisitions, along with the growing demand for the company’s product and services.

Earnings per share (excluding transaction costs) came in at $1.46, comfortably above the Zacks Consensus Estimate of $1.40 and the year-ago adjusted profit of $1.14.

Quarterly revenue of $4,734.0 million jumped 34.8% year over year from $3,513.0 million. The result also surpassed our projection of $4,446.0 million.

Segmental Performance

Rig Technology: Revenue in the Rig Technology segment increased 27.0% year over year to $2,405.0 million, while revenue out of backlog was $1,820.0 million, up 31% from the corresponding quarter last year.

The segment’s operating profit was up 10.4% year over year at $571 million. Operating margin, at 23.7%, however, dropped from 27.3% in the year-ago period.

Petroleum Services & Supplies: The company’s Petroleum Services & Supplies segment generated revenues of $1,776.0 million, up 30.7% from the year-ago period, while operating profit rose 57.8% from the second quarter of 2011 to $393 million.

Operating margin was 22.1% versus 18.3% in the year-ago quarter. The positive comparisons were due to higher sales in both domestic and overseas markets.

Distribution & Transmission: Distribution & Transmission revenues were up 84.4% year over year at $780 million. Operating profit was $54 million compared with $26 million in the year-earlier quarter. Operating margin was 6.9%, up from 6.1% in the second quarter of 2011.

Backlog

Backlog for capital equipment orders for the company’s Rig Technology segment was $11,280.0 million at June 30, 2012, up 9% from the previous quarter level.

Balance Sheet

At the end of the second quarter, the company had cash on hand of $1,917.0 million and long-term debt (including the current portion) of $1,448 million. The debt-to-capitalization ratio stood at approximately 7.1%.

Rating & Recommendation

We are maintaining our long-term Neutral recommendation on National Oilwell shares, based on the company’s impressive business model, well-defined product offering and healthy financial profile.

However, these positives are somewhat clouded by the volatile business structure of the oil and gas industry, cost escalations and changes in the exploration and production patterns.

National Oilwell, which operates in the ‘Oil and Gas Equipments and Service’ industry along with other players such as Halliburton Company (HAL - Analyst Report) and Weatherford International Ltd. (WFT - Analyst Report), currently retains a Zacks #3 Rank (Hold rating) for the short term.

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