(NOV) National-Oilwell Varco’s Profit Slips – Still Beats View

February 4th, 2010

Oilfield service company National-Oilwell Varco (NOV) reported better-than-expected fourth quarter results, helped by robust performance from its Rig Technology segment. Earnings per share, excluding transaction and restructuring charges, came in at 96 cents, well above the Zacks Consensus Estimate of 77 cents.

Estimates Revisions Trend & Outlook

It was the company’s fourth consecutive positive earnings surprise. National-Oilwell Varco has performed consistently well during this period with its average earnings surprise being 13%. This implies that the company has beaten the Zacks Consensus Estimate by 13.0% over the last four quarters.

However, estimates for the current quarter (first quarter of 2010) as well as fiscal 2010 have not seen any revisions over the last 7 days. In fact, there has been just a single revision in either direction over the last 30 days — up by a penny, from 75 cents to 76 cents.

The yearly estimate has seen an upward movement of just 1.3% (from $3.06 to $3.10) during this period, coming from 3 of the 17 analysts covering the stock. As a result of the lack of strength and magnitude in estimate revisions, our short-term as well as long-term recommendations on the stock remain Hold (Zacks Rank #3) and Neutral, respectively.

EPS Down Year-Over-Year

Compared to the corresponding quarter of last year, National-Oilwell Varco’s earnings per share was down more than 33% (from $1.44 to 96 cents), while revenues declined 17.7% to $3.1 billion. The year-over-year negative comparison was due to pricing and sales pressure.

Rig Technology Segment

Revenue in the Rig Technology segment decreased more than 5% year over year to $2 billion. However, revenues out of backlog, which comprised $1.5 billion of the total segment sales, were up 3% year over year.

The segment’s operating profit was up 1.6% year over year to $566 million, while operating margin stood at 28.6% (as against 26.7% in the year-ago period). Rig Technology’s profitability during the quarter was helped by efficiencies and favorable cost results on large rig construction projects.

Petroleum Services & Supplies Segment

The company’s Petroleum Services & Supplies segment achieved revenues of $936 million, down 32.5% from the year-ago period. The segment’s operating profit was down significantly from the prior-year period (by almost 69%) to $107 million. Operating margin was 11.4% versus 24.6% in the year-ago quarter. The negative comparisons were due to persistent pricing pressure and reduced purchasing by domestic clients, partially offset by rise in the North American rig counts.

Distribution Services Segment

Distribution Service revenues were down 31.5% year over year to $331 million. Operating profit was $8 million, compared to $43 million in the year-earlier quarter. Operating margin was 2.4%, down from 8.9% in the fourth quarter of 2008. The segment results were dragged down by lower domestic and other international sales, partly canceled by seasonal improvements in Canada.

Backlog

During the quarter, National-Oilwell Varco added $624 million of orders to its capital equipment backlog. The company also removed $46 million of discontinued orders on cancelled projects. Backlog for capital equipment orders for the company’s Rig Technology segment was $6.4 billion at Dec 31, 2009, compared to $7.3 billion at Sep 30, 2009.

Balance Sheet

At the end of 2009, the company had cash on hand of $2.6 billion and long-term debt of $883 million.

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(NOV) National-Oilwell Varco’s Profit Slips – Still Beats View

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(NOV) National-Oilwell Varco’s Profit Slips – Still Beats View

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