National Oilwell Varco Shrugs Off Weak Oil Price To Q1 Beat

Large-cap energy equipment maker National Oilwell Varco Inc. (NOV - Analyst Report) overcame a sharp drop in oil prices and reported better-than-expected first-quarter 2015 earnings, buoyed by activity gains (particularly in the ‘Rig Systems’ segment) and good project execution skills.

Earnings per share (excluding one-time items) came in at $1.29, comfortably surpassing the Zacks Consensus Estimate of $1.11. However, the bottom line was down from the year-ago adjusted figure of $1.43 amid lower price realization.
 

National Oilwell Varco Inc. - Quarterly EPS | FindTheCompany

First quarter revenues of $4,820 million decreased from $4,889 million a year ago and also failed to surpass the Zacks Consensus Estimate of $4,908 million.

Last week, smaller rival Cameron International Corp. (CAM - Analyst Report) also came out earnings outperformance.   

Segmental Performance

Rig Systems: Revenues came in at $2,523 million, up 11.8% from the year-ago quarter, while revenue from backlog was $2,250 million. Moreover, the unit’s operating profit increased 8.2% year over year to $488 million. Oilfield equipment’s significant demand during the quarter aided the results. However, operating margin – at 19.3% – came below the 20% achieved in the year-ago period.

Rig Aftermarket: The segment generated revenues of $719 million, down 4.1% from the year-ago period though operating profit improved 4.2% from the first quarter of 2014 to $199 million on the back of the unit’s premium drilling technology. However, operating margin was 27.7%, reflecting a rise from 25.5% in the year-ago quarter due to the lumpy nature of product mix and the timing of service work.

Wellbore Technologies: The segment’s revenues fell 8.4% year over year to $1,171 million. Operating profit was down 44.6% from the year-earlier quarter to $124 million on U.S. market weakness. Operating margin for the unit came in at 10.6%, down from 17.5% in first-quarter 2014.

Completion & Production Solutions: Revenues for the segment were recorded at $948 million, down 5.4% from $1,002 million in the year-ago quarter. The unit’s operating profit came in at $108 million, 24.5% lower year over year on the back of deterioration in demand for its floating production and subsea businesses. Moreover, operating margin was 11.4%, lower than 14.3% in the year-ago quarter.        

Backlog

Capital equipment orders’ backlog for Rig Systems was $10,430 million as of Mar 31, 2015, down 31% from the corresponding quarter last year.

Moreover, Completion & Production Solutions segment reported a backlog of $1,460 million in capital equipment order as at the end of the first quarter. The figure decreased 10% from the year-ago quarter.

Balance Sheet

At the end of the first quarter, the company had cash on hand of $3,024 million and long-term debt of $4,094 million. The debt-to-capitalization ratio stood at approximately 17.6%.

Zacks Rank & Stock Picks

National Oilwell Varco – which last year spun off its distribution business to form an independent entity NOW Inc. (DNOW - Snapshot Report) – currently retains a Zacks Rank #3 (Hold).

Meanwhile, one can look at a better-ranked player in the same industry like USA Compression Partners L.P. (USAC - Snapshot Report), which carries a Zacks Rank #2 (Buy).