National Oilwell Varco (NOV) Q1 Loss Narrower Than Expected

Rising momentum in the North American land market, together with aggressive cost reduction and improved efficiencies helped energy equipment maker National Oilwell Varco Inc. (NYSE:NOV) report narrower-than-expected first-quarter 2017 loss.

Loss per share (excluding one-time items) came in at 17 cents compared with the Zacks Consensus Estimate for a loss of 20 cents.

National Oilwell Varco’s success in targeted cutting of expenses and implementation meant that EBITDA for the quarter was $105 million, reflecting an improvement of $3 million from the fourth quarter.

However, the bottom line compared unfavorably with the narrower year-ago adjusted loss amid lower customer spending, reflecting the severe stress in the oil and gas industry.

First-quarter revenues of $1,741 million decreased from $2,189 million a year ago but were above the Zacks Consensus Estimate of $1,643.8 million.

Segmental Performance

Rig Systems: Revenues came in at $393 million, down 58% from the year-ago quarter. Moreover, the unit’s operating profit plunged 87% year over year to $16 million. Lower backlog and more projects nearing completion during the quarter dampened the results, which were partly offset by cost cuts.

Rig Aftermarket: The segment generated revenues of $321 million, down 18% from the year-ago period, while operating profit dropped 14% from the first quarter of 2016 to $66 million as spare parts demand remained tepid due to weak market conditions.

Wellbore Technologies: The segment’s revenues fell 12% year over year to $555 million. Worse, the unit’s operating loss widened from a year ago, to $57 million amid declines in international and offshore markets.

Completion & Production Solutions: Revenues for the segment were recorded at $648 million, up 16% from $558 million in the year-ago quarter. The unit recorded operating profit of $23 million, turning around from an operating loss of $4 million in the corresponding period last year. The outperformance mainly stemmed from faster-than-anticipated recovery in North America.

Costs & Expenses

Adjusted selling, general, and administrative expenses declined $42 million (or 12%) in the quarter from the year-ago period.

Backlog

Capital equipment orders’ backlog for Rig Systems was $2,320 million as of Mar 31, 2017, including $118 million in new orders during the first quarter.

Moreover, Completion & Production Solutions segment reported a backlog of $751 million in capital equipment order as at the end of the first quarter. The figure included $323 million in new orders.

Balance Sheet

At the end of March, the company had cash and cash equivalents of $1,479 million and long-term debt of $2,707 million. The debt-to-capitalization ratio was approximately 16.2%.

Zacks Rank

National Oilwell Varco – which last year teamed up with General Electric Co. (NYSE:GE) to provide industry-leading standardized interfaces – carries a Zacks Rank #3 (Hold).

Meanwhile, one can look at better-ranked energy players like Diamond Offshore Drilling Inc. (NYSE:DO) and Cenovus Energy Inc. (TO:CVE) . Both carry a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Incorporated in 1989, Houston, TX-based Diamond Offshore is a major contract driller, providing comprehensive offshore drilling services to the global energy industry. The company has an excellent track of having outperformed estimates in each of the last four quarters.

Calgary-based Cenovus Energy is a large integrated oil company with a focus on the Canadian Oil Sands. It also produces oil and natural gas while also being involved in the transportation and refining of crude oil. The 2017 Zacks Consensus Estimate for this company is 40 cents, representing some 221% earnings per share growth over 2016. Next year’s average forecast is 46 cents, pointing to another 15% growth.

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