National Oilwell Varco (NOV) Q3 Loss Narrower Than Expected

Strong performance from Wellbore Technologies and Completion and Production Solutions segment helped energy equipment maker National Oilwell Varco Inc. (NYSE:NOV) report narrower-than-expected third-quarter 2017 loss.

Loss per share (excluding one-time items) came in at 7 cents compared with the Zacks Consensus Estimate of a loss of 8 cents. The bottom line also improved considerably from the year-ago period’s loss of 34 cents.

Despite challenging market conditions and the disruption caused by Hurricane Harvey, the strong acceptance of National Oilwell Varco’s new launches meant that adjusted EBITDA for the quarter was $167 million, reflecting an improvement of $25 million from the second quarter.

Third-quarter revenues of $1,835 million increased from $1,646 million a year ago but were below the Zacks Consensus Estimate of $1,869 million as customers continue to restrict capital spending to only bare essentials.

Segmental Performance

Rig Systems: Revenues came in at $330 million, down 29.8% from the year-ago quarter and below the Zacks Consensus Estimate of $356 million. The unit’s adjusted EBITDA plunged 44% year over year to $28 million on deferred deliveries and scarcity of new equipment orders. However, it was ahead of the $25.3 million envisioned by analysts polled by Zacks as an amended agreement with a client resulted in wiping off around $100 million from the segment’s backlog and a small gain.

Rig Aftermarket: The segment generated revenues of $311 million, down 3.4% from the year-ago period and unable to beat our projection of $349 million. Adjusted EBITDA dropped 14.8% from the third quarter of 2016 to $69 million and failed to match our projection of $87 million. Spare parts demand remains tepid due to weak market conditions, while an unfavorable product mix played its part too.

Wellbore Technologies: The segment’s revenues beat the Zacks Consensus Estimate of $672 million and rose 31.7% year over year to $693 million. Importantly, the unit improved significantly from last year’s adjusted EBITDA of $26 million to clock $94 million this time. The figure also managed to edge past our guidance of $93 million on higher volumes stemming from greater market adoption of the unit’s new technology introductions.

Completion & Production Solutions: Revenues for the segment were recorded at $682 million, up 25.6% from $543 million in the year-ago quarter and just ahead of our $679 million estimate. The unit recorded adjusted EBITDA of $97 million, up from $43 million in the corresponding period last year and outperforming the Zacks Consensus Estimate of $93 million. Heightened land activity in North America and the Middle East impacted profitability.

Backlog

Capital equipment orders’ backlog for Rig Systems was $2,010 million as of Sep 30, including $84 million in new orders during the third quarter.

Moreover, Completion & Production Solutions segment reported a backlog of $974 million in capital equipment order as at the end of the third quarter. The figure – which surpassed the Zacks Consensus Estimate of $898 million – included $463 million in new orders.

Balance Sheet

As of Sep 30, the company, which last year teamed up with General Electric Co. (NYSE:GE) to provide industry-leading standardized interfaces, had cash and cash equivalents of $1,722 million and long-term debt of $2,707 million. The debt-to-capitalization ratio was approximately 16.1%.

Zacks Rank & Stock Picks

National Oilwell Varco holds a Zacks Rank #3 (Hold).

Meanwhile, one can look at better-ranked energy players like HollyFrontier Corporation (NYSE:HFC) and Murphy Oil Corporation (NYSE:MUR) , both sporting Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

HollyFrontier is one of the largest independent refiners and marketers of petroleum products in the United States. The Dallas-TX based company has seen the Zacks Consensus Estimate for 2017 and 2018 increase 16.4% and 8.6%, to $1.77 and $2.27 per share, respectively, over 30 days.

El Dorado, AR-based Murphy Oil is a global oil and gas exploration and production company. The company has a good earnings surprise history. It surpassed estimates in three of the last four quarters, witnessing an average positive surprise of 9.19%.

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