With crude oil stabilizing over the past few months, oil companies started to open their wallets even wider. That increase in spending helped drive a noticeable improvement in NOW's (NYSE:DNOW) results during the past two quarters. There's growing evidence that this trend should continue in 2017, which should fuel further improvement in the equipment distributor's results throughout the year.

NOW results: The raw numbers

Metric

Q4 2016

Q4 2015

Year-Over-Year Change

Revenue

$538 million

$644 million

(16.5%)

Adjusted net income

($31 million)

($27 million)

N/M

Adjusted EPS

($0.29)

($0.25)

N/M

Data source: NOW Inc.

What happened with NOW this quarter? 

NOW's financial results continue to improve:

  • While sales declined and its adjusted loss widened year over year, NOW's results are getting better after bottoming out earlier in the year. Revenue was up 3.5% from the third quarter and is now up 7.4% from the bottom in the second quarter. The company's adjusted loss, likewise, has narrowed for two consecutive quarters.
  • Sales in the U.S. edged up 1.9% from the third quarter, to $379 million, which outpaced the company's expectations for flat sales sequentially. Furthermore, while U.S. revenue declined 12% year over year, sales outpaced the 22% decline in the U.S. rig count.
  • Canadian sales rose 9% from last quarter, to $73 million, due to an improvement in operating activities in the country, resulting from a higher rig count.
  • International sales also rose during the quarter, up 6% sequentially, to $86 million. That improvement came even though the international rig count slipped 1% from the prior quarter.
  • The sequential improvement in revenue led to a $9 million increase in earnings before interest, taxes, depreciation, and amortization (EBITDA). Meanwhile, the company generated $49 million in cash flow during the quarter and $235 million for the full year.
Oilfield services workers with pipes and drilling rig.

Image source: Getty Images.

What management had to say 

CEO Robert Workman commented on the quarter, pointing out that: 

As expected, Canadian and International revenues grew sequentially in the fourth quarter. Simultaneously, the average daily billings in the quarter grew 10% sequentially, allowing the U.S. to beat our expectations of flat revenues for the fourth quarter. I'm pleased that we finished the quarter with a $9 million sequential improvement in EBITDA excluding other costs. Operating losses narrowed by $6 million.

Industry conditions are clearly starting to improve, especially across North American shale plays. For example, Canadian drilling contractor Precision Drilling (NYSE:PDS) has activated more than 100 rigs since the bottom in the second quarter of last year, and now has 148 running across the continent. Because of that, Precision Drilling plans to start increasing the fees it charges customers for these rigs.

Meanwhile, oil-field service giant Halliburton (NYSE:HAL) reported a 9% sequential increase in its North America revenue during the fourth quarter, thanks to rising activity levels. Halliburton also expects pricing to increase this year according to comments by its CEO on the quarterly conference call. The Halliburton senior executive said that "animal spirits have broken free and they are running... Customers are excited again, and our conversations have changed from being only about cost control to how we can meet their incremental demand."

Looking forward 

With the industry moving from cost control back to growth mode, it should continue to drive an improvement in NOW's financial results this year. In fact, the company sees evidence of this on the horizon. Workman noted in the earnings release that:

It is evident that third quarter rig count additions are beginning to translate into production facility construction. Assuming this trend continues into 2017, paired with a new supply chain services award in recent weeks from a large upstream oil and gas operator in the U.S., we are encouraged about 2017.

Matt DiLallo has no position in any stocks mentioned. The Motley Fool owns shares of and recommends NOW. The Motley Fool owns shares of Halliburton. The Motley Fool has a disclosure policy.