NOV Beats As Demand Rebounds - Analyst Blog

Oilfield service company National-Oilwell Varco (NOV) reported better-than-expected fourth 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 came in at $1.05, comfortably above the Zacks Consensus Estimate of 96 cents and the year-ago profit of 94 cents. Quarterly revenue rose 1.2% year-over-year – from $3.1 billion to $3.2 billion – and was 4.2% above our projection.

Segmental Performance

Rig Technology:Revenue in the Rig Technology segment decreased 11.1% year over year to $1.8 billion, while revenue out of backlog was down 16% from the corresponding period last year.

The segment's operating profit was down 11.5% year over year to $501 million. Operating margin, at 28.5%, marginally dipped from 28.6% 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 21.5% from the year-ago period, while operating profit rose 58.9% from the fourth quarter of 2009 to $170 million. Operating margin was 15.0% versus 11.4% 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.

Distribution Services:Distribution Service revenues were up 27.8% year over year to $423 million. Operating profit was $30 million, compared to $8 million in the year-earlier quarter. Operating margin was 7.1%, up from 2.4% in the fourth quarter of 2009. The segment results were helped by strong gains in U.S. operations on the back of higher rig counts.

Backlog

During the quarter, National-Oilwell Varco added $1.4 billion of orders to its capital equipment backlog, which included higher demand for drilling equipment for newbuild offshore rigs, as well as for well intervention and stimulation equipment. Backlog for capital equipment orders for the company's Rig Technology segment was $5.0 billion at December 31, 2010, up slightly from the previous quarter level.

Balance Sheet

At the end of 2010, the company had cash on hand of $3.3 billion and long-term debt (including the current portions) of $887 million. The debt-to-capitalization ratio stood at approximately 5.3%.

Our Recommendation

National-Oilwell Varco, which ranks ahead of Cameron International Corp. (CAM) as the biggest U.S. maker of oilfield equipment, currently retains a Zacks #3 Rank that translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.

 
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