Oilfield service company National-Oilwell Varco (NOV) reported better-than-expected third quarter results, helped by robust drilling and pressure pumping activity throughout North America, as well as good project execution skills and manufacturing efficiency.
Earnings per share, excluding transaction charges, came in at 97 cents, above the Zacks Consensus Estimate of 90 cents and the year-ago profit of 95 cents. Revenue of $3.0 billion was also slightly ahead of our expectations though it was below the year-ago level.
Rig Technology
Revenue in the Rig Technology segment decreased 17.5% year over year to $1.7 billion, while revenue out of backlog was down 28% from the corresponding period last year.
The segment’s operating profit was down 17.1% year over year to $480 million. However, operating margin, at 29.1%, was marginally up from 29.0% in the year-ago period. Rig Technology’s profitability during the quarter was helped by higher demand for aftermarket parts, services and capital spares.
Petroleum Services & Supplies
The company’s Petroleum Services & Supplies segment achieved revenues of $1.1 billion, up 23.5% from the year-ago period, while operating profit rose 90.7% from the third quarter of 2009 to $164 million. Operating margin was 15.1% versus 9.8% in the year-ago quarter. The positive comparisons were due to higher demand for products and services provided by the segment, buoyed by improved rig activity in U.S. shale plays and seasonal recovery in Canada.
Distribution Services
Distribution Service revenues were up 38.6% year over year to $424 million. Operating profit was $24 million, compared to $7 million in the year-earlier quarter. Operating margin was 5.7%, up from 2.3% in the third quarter of 2009. The segment results were helped by sales improvements in Canada strong gains in U.S. operations on the back of higher rig counts.
Backlog
During the quarter, National-Oilwell Varco added $1.2 billion of orders to its capital equipment backlog, which included new offshore and land rigs, workover rigs, cranes, and well-stimulation equipment, from domestic and international clients. Backlog for capital equipment orders for the company’s Rig Technology segment was $4.9 billion at September 30, 2010, up slightly from the previous quarter level.
Balance Sheet
As of September 30, 2010, the company had cash on hand of $3.1 billion and long-term debt (including the current portions) of $870 million. The debt-to-capitalization ratio stood at approximately 5.4%.
Our Recommendation
Even though we have a Zacks #2 Rank (short-term Buy rating) on the company in the short run, we are Neutral on National-Oilwell Varco in the longer term.
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