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Global large-cap energy equipment maker, National Oilwell Varco (NOV - Analyst Report) reported weaker-than-expected first-quarter 2013 earnings, due to lower operating margin in all its segments.

Earnings per share (excluding transaction costs) of $1.29 missed the Zacks Consensus Estimate by 8 cents and the year-ago adjusted profit by 15 cents. Quarterly revenues jumped 23.3% year over year from $4,303.0 million to $5,307.0 million but was below our projection of $5,421.0 million.

Segmental Performance

Rig Technology: Revenues from National Oilwell’s Rig Technology segment increased 16.3% year over year to $2,628.0 million, while revenue out of backlog was up 16.0% from the corresponding quarter last year.

The segment’s operating profit was up 1.1% year over year at $557.0 million. Rig Technology’s profitability was backed by higher demand for capital equipment used for newbuild offshore rigs. However, operating margin was recorded at 21.2%, down from 24.4% in the year-ago quarter.

Petroleum Services & Supplies: National Oilwell’s Petroleum Services & Supplies segment generated revenues of $1,701.0 million, almost flat year over year, while operating profit decreased 19.8% from the first quarter of 2012 to $311.0 million.

Operating margin was 18.3% versus 22.8% in the year-ago quarter. The negative comparison was due to lower demand for products and services on the back of a weaker North American market.

Distribution & Transmission: Distribution & Transmission revenues climbed 117.5% year over year to $1,227.0 million. Operating profit was $65 million compared with $43 million in the year-earlier quarter. However, operating margin came in at 5.3%, down from 7.6% in the year-ago quarter.


Backlog for capital equipment orders for National Oilwell’s Rig Technology segment was at a record $12,920.0 million as of Mar 31, 2013, up 8.0% sequentially.

Balance Sheet

At the end of the first quarter, National Oilwell’s cash on hand was $2,441.0 million and debt was $4,349.0 million. The debt-to-capitalization ratio came in at approximately 17.3%.

Zacks Rank

National Oilwell 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, there are certain other companies in the energy sector that are expected to perform better in the short term. These include Zacks Rank #1 (Strong Buy) EPL Oil & Gas Inc. , Harvest Natural Resources Inc. (HNR - Snapshot Report) and Willbros Group Inc. (WG - Snapshot Report).

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