NOV Is Good Enough for Me

For rig builder National Oilwell Varco (NYSE: NOV), monster financial results have become fairly routine. Another quarter, another record backlog. This time around, Mr. Market could not be bothered, and NOV's shares took a dive.

Well, I at least hope that you are interested in these latest results, dear Fool, because they were excellent.

For the quarter, revenues rose 28%, while operating profit lifted 51%. As for operating margins, they did what they always do:

Fiscal Period	Operating Margin (%)
Q4, 2007	21.6
Q3, 2007	21.1
Q2, 2007	20.8
Q1, 2007	19.7
Q4, 2006	18.3
Q3, 2006	16.1

Data from company press releases.

NOV wrings out efficiencies like nobody's business. This is what makes it such a successful serial acquirer. Just one example is last year's opening of a new aftermarket service center in Houston. This new space tackles rig refurbishment, freeing up other facilities to focus on new equipment. Management pointed directly to this and other manufacturing initiatives as the source of margin improvement in the core Rig Technology segment.

In the course of another educational conference call, I gained a completely new understanding of the firm's aftermarket sales business. As became clear, aftermarket does not mean afterthought.

It all began with CEO Pete Miller noting that NOV is building most of the world's deepwater rigs -- not to mention two harsh environment semisubmersibles for the giant Shtokman field that Total SA (NYSE: TOT) and StatoilHydro (NYSE: STO) are developing in collaboration with rouble-rouser OAO Gazprom (OTC BB: OGZPY). This newbuild activity translates to 20 years or more of service opportunities, including multi-million dollar refurbishments. This isn't quite a razor-and-razorblade business a la Intuitive Surgical (Nasdaq: ISRG), but there's a hint of that model at work here.

Now how is NOV so confident that drillers like Transocean (NYSE: RIG) or Atwood Oceanics (NYSE: ATW) won't take their aftermarket business elsewhere? The company's CFO noted that these high-tech rigs are not like those of generations past, and thus the owners are going to need more OEM "care and feeding." This isn't limited to offshore rigs, either. Management sees rising demand for more advanced land rigs internationally, which jives with another company's recent order from south of the border. All told, NOV continues to occupy an extremely strong position in the energy sector.

• Total and Atwood have a tale to tell.
• It took some dredging to reveal StatoilHydro's hedging.