Well, that did not go quite as expected. Heading into the third quarter, National Oilwell Varco's (NYSE:NOV) CFO said that the company expected revenue to bounce 10% off the bottom due to "large projects booked earlier in the year and see continued improvement in our production-related businesses." Instead, the company delivered another sequential decline in revenue. While the company did have several positives in the quarter, it was certainly a "glass half full/glass half empty" quarter depending on one's perspective.
Drilling down into the numbers
For the third quarter, National Oilwell Varco reported revenue of $1.65 billion, which is down 5% from last quarter and 50% below the year-ago quarter:
Two of the company's four segments drove that decline. Revenue in the rig systems segment slumped 17% sequentially and 69% year over year to $470 million. Worse yet, the segment only recorded $185 million of new orders, which barely replaced half of the $363 million of orders it shipped out of its backlog, pushing it down to $2.76 billion. Revenue in the rig aftermarket segment also declined, down 12% from the second quarter and 44% from the year-ago quarter.
On a more positive note, the wellbore technologies segment reported a 3% increase in revenue from last quarter, though revenue is down 37% from the third quarter of last year. Finally, completion and production solutions revenue edged up 1% sequentially, though, like the other segments, revenue was down sharply from last year, slumping 32%. In addition, new orders were only $184 million, which again only replaced about half of the revenue coming out of the backlog, pushing it down to $812 million.
Turning to profitability, or lack thereof, National Oilwell Varco reported a net loss of $1.36 billion, or $3.62 per share. However, $1.09 billion of that loss was the result of goodwill impairments, severance charges, facility closures, and the write-off of other items. After adjusting for those items, the net loss narrows to $128 million, or $0.34 per share. However, like revenue, that is a further decline from last quarter when the company turned in an adjusted loss of $114 million, or $0.30 per share. The operating loss did narrow, though, from $270 million to $108 million while adjusted EBITDA rose from $25 million to $68 million for those looking for some positives.
CEO Clayton Williams had this to say about the quarter:
Our ability to post a higher Adjusted EBITDA on a 5% sequential decline in revenue was the result of our team's continued progress in improving our efficiencies and lowering our costs. While consolidated revenues continued to contract in the third quarter, two of our four reporting segments posted sequential revenue growth, and three of our four segments posted higher margins.
Clearly, he is a glass-half-full type.
A look at the outlook
Next, Williams turned to the outlook for what lies ahead, saying:
We are encouraged by the early signs of a recovery in the North American marketplace. Our short cycle businesses within our Wellbore Technologies Segment account for over 80% of total segment revenue. Within North America these posted sequential revenue growth of approximately 15%. Even though international, offshore and capital equipment markets remain challenging, we believe declining global production and improving commodity prices are setting the stage for a broader recovery in 2017. In the meantime, we continue to aggressively reduce costs, improve efficiencies, and invest in our comprehensive technology portfolio.
Williams notes that that North American energy markets, driven by shale plays, are starting to recover. That is no surprise given what shale producers have been saying and doing. For example, leading shale driller Devon Energy (NYSE:DVN) is one of a handful of companies that has increased its capex budget to accelerate drilling in the second half of this year. In Devon Energy's case, it added $200 million to its budget boosting it to between $1.1 billion to $1.3 billion. Also, as a result of recently completed asset sales, Devon has another $1 billion in cash earmarked to accelerate its activity.
That said, the offshore markets are a different story as they continue to weaken. An evidence of this is the ongoing contract losses and rig retirements at leading offshore drilling contractor Transocean (NYSE:RIG). Thus far, Transocean has retired 28 rigs and could retire between six and 12 more over the next few years, which will dampen demand for rig equipment from National Oilwell Varco.
Despite this dichotomy in the oil market, National Oilwell Varco continues to invest for the eventual recovery in all its markets. That led it to make another bolt-on acquisition during the quarter, acquiring Fjord Processing in a roughly $150 million deal. Furthermore, with $1.51 billion in cash and $4.5 billion in available credit, it has plenty of capacity to make additional acquisitions.
National Oilwell Varco's third-quarter results were another step in the wrong direction. That said, the company is starting to get much more optimistic about the near-term outlook for its shale-focused businesses. While the recovery in its international and offshore segments appears farther away, given what the industry has gone through over the past two years, any optimism is a welcome sign.