What's In Store For National Oilwell's (NOV) Q2 Earnings?

National Oilwell Varco, Inc. (NYSE:NOV) is scheduled to release second-quarter 2019 results on Jul 29, after the closing bell. The current Zacks Consensus Estimate for the quarter to be reported is a loss of 7 cents on revenues of $2.08 billion.

The Houston, TX-based company is a world leader in designing, manufacturing, and selling of comprehensive systems, components, products, as well as equipment used in oil and gas drilling and production worldwide.

In the last reported quarter, it reported weaker-than-expected results amid seasonal demand slowdown in international markets and pricing pressure in North America. Coming to earnings surprise history, National Oilwell managed to beat estimates in just one out of the trailing four quarters, with average negative surprise of 46.18%.

Let’s see which way are top and bottom-line estimates headed this time around.

The Zacks Consensus Estimate for second-quarter loss has widened by a penny over the past 30 days to 7 cents. Further, it compares unfavorably with the year-ago reported earnings of 6 cents a share. The Zacks Consensus Estimate for revenues is pegged at $2,082 million, indicating a decrease from $2,106 million reported in the prior-year quarter.

Let’s take a look at the factors that are likely to shape National Oilwell’s second-quarter earnings.

Factors at Play

Tightness in upstream companies' investment budget due to low crude prices during the final months of 2018 weakened the demand for oilfield equipment, which is likely to play a spoilsport for National Oilwell’s upcoming release. Things don’t appear bright for the firm this earnings season owing to fewer deliveries of drill pipes and other equipment, along with slowdown of activities in both offshore and North American markets.

Evidently, the firm’s adjusted EBITDA from all the three segments is projected to decline on a year-over-year basis in second-quarter 2019. Adjusted EBITDA from the Wellbore Technologies segment is projected at $129 million, suggesting a decline from the last reported quarter’s $133 million. The Zacks Consensus Estimate for second-quarter 2019 adjusted EBITDA from Rig Technologies and Completion & Production Solutions units is pegged at $68 million and $52 million, implying a decrease from the last reported quarter’s $84 million and $94 million, respectively.

While weaker y/y performance from all the segments are likely to dent earnings, gradual acceleration in orders for new capital equipment bodes well for the firm. Notably, new orders in the Completion & Production Solutions segment are expected to be $440 million, higher than the year-ago figure of $398 million. Backlog orders from the Rig Technologies segment are also likely to rise on a sequential basis.

Earnings Whispers

Our proven model does not conclusively show that National Oilwell will beat estimates in the to-be-reported quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat the consensus estimate. That is not the case here as you will see below. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -25.71%. This is because the Most Accurate Estimate of a loss of 9 cents is wider than the Zacks Consensus Estimate of a loss of 7 cents.

Zacks Rank: National Oilwell currently has a Zacks Rank of 3, which increases the predictive power of ESP. But we need to have a positive Earnings ESP to be confident of a positive surprise.

Note that we caution against stocks with a Zacks Ranks #4 or 5 (Sell rated) going into an earnings announcement, especially when the company is seeing a negative estimate revision.

Stocks to Consider

Investors can consider a few companies from the same sector that have the right combination of elements to deliver a positive earnings surprise in the upcoming quarterly reports.

TransCanada Corporation (TSX:TRP) has an Earnings ESP of +0.34% and a Zacks Rank #3. The firm is expected to release second-quarter earnings on Aug 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Royal Dutch Shell (LON:RDSa) plc RDS.A has an Earnings ESP of +0.55% and a Zacks Rank #3. The company is anticipated to release second-quarter earnings on Aug 1.

Enbridge Inc. (NYSE:ENB) is set to report second-quarter 2019 earnings on Aug 2. The stock has an Earnings ESP of +8.88% and a Zacks Rank #2.

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