Why Glenview Capital adds new position in National Oilwell Varco

Overview: Glenview Capital Management's 2Q14 positions (Part 2 of 6)

(Continued from Part 1)

Glenview Capital and National Oilwell Varco

Larry Robbins’ Glenview Capital bought new positions in National Oilwell Varco (NOV), Cadence Design Systems (CDNS), and Brookdale Senior Living (BKD). The fund raised positions in VCA Inc. (WOOF) and Flextronics International (FLEX).

Glenview Capital disclosed a new position in National Oilwell Varco (NOV) that accounts for 2.52% of the fund’s 2Q14 portfolio.

National Oilwell Varco designs, manufactures, and sells equipment and components used in oil and gas drilling and production. It offers oilfield services and supply chain integration services to the upstream oil and gas industry. It has operations in over 1,235 locations across six continents.

Completes spin off of distribution business

On May 30, 2014, the company completed the spinoff of its distribution business. It became an independent public company named NOW Inc. (or DNOW). A September release on the spinoff said that “As separate companies, the distribution business and the remainder of NOV will each be better positioned and have the enhanced operational flexibility to focus on their specific products, services and customers.”

Realigns reporting segments

In connection with the spinoff, NOV reviewed its reporting and management structure. Effective April 1, 2014, it reorganized the Rig Technology, Petroleum Services & Supplies, and remaining operations of Distribution & Transmission reporting segments. It reorganized them into four new reporting segments. The new reporting segments are Rig Systems, Rig Aftermarket, Wellbore Technologies, and Completion & Production Solutions.

Misses revenue estimates for 2Q14

NOV reported 2Q14 net income of $619 million, or $1.44 per fully diluted share—compared to net income of $531 million, or $1.34 per fully diluted share, in 2Q13. Revenues missed estimates and came in at $5.26 billion—an increase of 7% from 1Q14 and an increase of 12% from 2Q13.

NOV said its earnings growth reflected “skillful execution of projects and backlog, and improving market conditions across North America and other parts of the world, despite a seasonal decline in Canada.” Management noted on the earnings call that the second half of 2014 could be more challenging because the market “for new floating rig softening for at least the next few quarters due to lower dayrates pressured by new and contracted capacity coming into the market.”

NOV reported revenue growth across all of its four segments.

• The Rig Systems segment saw revenues up 14% year-over-year (or YoY). Offshore rig newbuild projects, floaters, and jackups accounted for ~$1.4 billion, or 27%, of NOV’s consolidated second quarter revenues.

• The Rig Aftermarket segment revenue and operating profit grew because of increased demand for spare parts, repairs, and services along with continued investments in capacity expansions.

• The Wellbore Technologies segment saw a positive impact from a higher average rig count YoY. Also, NOV’s customers worked through the excess inventory they carried into early 2013.

• The Completion & Production Solutions segment saw a 12% revenue increase due to higher shipments of sub-sea flexible pipe and well stimulation equipment.

Raises dividend in May

In May 2014, NOV declared $0.46 per share in quarterly dividend—a 76.9% increase from an earlier dividend of $0.26. In its second quarter filing, the company said that dividend payments increased to $309 million during the first six months of 2014—from $167 million during the first six months of 2013.

Continue to Part 3

Browse this series on Market Realist:

• Part 1 - Must-know: Glenview Capital Management’s 2Q14 positions

• Part 3 - Glenview Capital starts new position in Cadence Design Systems

• Part 4 - Glenview Capital starts a new position in Brookdale Senior Living