Yahoo Finance National Oilwell Beats on Q2 Earnings Despite Low Oil Price - Analyst Blog
National Oilwell Varco Inc. NOV managed to report better-than-expected second-quarter 2015 results primarily due to cost-cutting initiatives amid lower demand for oilfield equipment following a freefall in crude price.
Earnings per share (excluding one-time items) came in at 93 cents, comfortably surpassing the Zacks Consensus Estimate of 64 cents. However, the bottom line of the large-cap energy equipment maker was down from the year-ago adjusted figure of $1.61 due to lower price realization.
Second-quarter revenues of $3,909 million decreased from $5,255 million a year ago. The top line, however, just managed to surpass the Zacks Consensus Estimate of $3,903 million.
Segmental Performance
Rig Systems: Revenues came in at $1,930 million, down 18.6% from the year-ago quarter, while revenues from backlog were $1700 million. Moreover, the unit’s operating profit decreased 21.2% year over year to $395 million. Oilfield equipment’s lower demand during the quarter hurt results. Additionally, operating margin of 20.5% came below 21.1% in the year-ago period.
Rig Aftermarket: The segment generated revenues of $657 million, down 16.3% from the year-ago period. Operating profit fell 33.2% from the second quarter of 2014 to $145 million. In addition, operating margin was 22.1%, reflecting a fall from 27.6% in the year-ago quarter.
Wellbore Technologies: The segment’s revenues fell 33.9% year over year to $956 million. Operating profit plummeted 82.5% from the year-earlier quarter to $47 million on oil price weakness that hampered the demand for wellbore services. Operating margin for the unit came in at 4.9%, down from 18.6% in second-quarter 2014.
Completion & Production Solutions: Revenues for the segment were recorded at $873 million, down 22.5% from $1,127 million in the year-ago quarter. The unit’s operating profit came in at $81 million, 48.7% lower year over year due to deterioration in demand for its floating production and subsea businesses following a freefall in commodity prices. Moreover, operating margin was 9.3%, which came in lower than 14% in the year-ago quarter.
Backlog
Capital equipment orders’ backlog for Rig Systems was $9,030 million as of Jun 30, 2015, down 41% from the corresponding quarter last year.
Moreover, the Completion & Production Solutions segment reported a backlog of $1,190 million in capital equipment order as at the end of the second quarter. The figure decreased 44% from the year-ago quarter.
Cost Cut
With plummeting oil prices the demand for rigs fell significantly. This, in turn, called for lower demand for equipment used for drilling activities. Hence, in order to survive the unfavorable business environment, National Oilwell reduced operating cost considerably primarily by reducing headcounts. Other energy players like Apache Corp. APA and ConocoPhillips COP also followed the same path.
Balance Sheet
At the end of the second quarter, the company had $2,544 million cash on hand and $4,154 million in long-term debt. The debt-to-capitalization ratio was approximately 18.5%.
Zacks Rank
National Oilwell Varco – which spun off its distribution business last year to form an independent entity NOW Inc. DNOW – currently carries a Zacks Rank #4 (Sell).
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