Oilfield service company National-Oilwell Varco (NOV) reported mixed first quarter 2011 results, based on robust oilfield activity along with strong orders and backlog, partially offset by lower operating profit.
Earnings per share came in at $1.00, which missed the Zacks Consensus Estimate by a penny. The year-over-year decline was by a marginal 1%.
Quarterly revenue of $3.15 billion was 3.8% higher than the year-ago quarter’s result and 0.4% ahead of our projection.
Segmental Performance
Rig Technology: Revenue from the Rig Technology segment decreased 15% year over year to $1.61 billion, while revenue out of backlog plunged 25% from the comparable quarter last year. The segment’s operating profit was down 27.4% year over year at $422 million. Operating margin, at 26.2%, dipped from 30.8% in the year-ago period.
Petroleum Services & Supplies: The Petroleum Services & Supplies segment generated revenues of $1.27 billion, up 37% from the year-ago period, while operating profit increased a hefty 117.7% year over year to $246 million. Operating margin jumped to 19.4% from12.2% in the year-ago quarter.
Distribution Services: Distribution Service revenues were up 23% year over year at $410 million. Operating profit was $28 million as against $11 million in the year-earlier quarter. Operating margin was 6.8%, up from 3.3% in the first quarter of 2010.
Backlog
During the quarter, National-Oilwell Varco added $2.28 billion of orders to its capital equipment backlog, which included higher demand for drilling equipment for newbuild offshore rigs. Backlog for capital equipment orders for the Rig Technology segment was $6.16 billion at March 31, 2011, up 23% sequentially.
Balance Sheet
As of March 31, 2011, the company had $3.1 billion cash on hand and long-term debt (including the current portions) of $715 million. The debt-to-capitalization ratio stood at approximately 4.2%.
Our Recommendation
Given its strong balance sheet, leading market position and technology innovation, we believe that National-Oilwell Varco remains better positioned to navigate the uncertain environment than its peers such as Cameron International Corp. (CAM).
However, the company’s business is not immune to gas/oil price volatility, as well as exploration and production spending patterns, costs, geo-political risks, competition and the technological changes. Hence, we are maintaining our long-term Neutral rating on the stock.
National-Oilwell Varco currently retains a Zacks #3 Rank that translates into a short-term Hold rating.
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