The third quarter proved to be more challenging than National Oilwell Varco (NOV -0.06%) initially anticipated. A dip in oil prices heading into the quarter caused customers to cut spending. On top of that, Hurricane Harvey disrupted oil-field activities along the U.S. Gulf Coast. However, while both headwinds impacted National Oilwell Varco's results, the equipment giant overcame them to post higher revenue while narrowing its net loss.
Drilling down into the numbers
National Oilwell Varco reported $1.84 billion in revenue for the third quarter, an increase of 4% from the second quarter and 11% higher year over year. Its net loss narrowed to $26 million, or $0.07 per share, which was roughly half what it was last quarter. That lines up reasonably well with the guidance the company provided on its second-quarter conference call. That said, the quarter didn't quite play out as anticipated since revenue from two of its four segments declined:
Sales in the rig systems segment continued to decline, falling another 5% during the quarter, missing expectations for "modestly higher" revenue. The culprit was the decline in oil prices that started late in the second quarter and caused customers to pull back spending on all but essential items. Rig aftermarket revenue also declined, falling 9%, missing the company's guidance that it would "increase slightly" after the slump in oil prices caused customers to curtail spending on spare parts.
Even so, higher revenue from National Oilwell Varco's other two segments more than made up for these weak spots. Sales within the wellbore technologies segment jumped 13% from last quarter, which was above the company's forecast for an 8% to 10% increase. One of the drivers was "rising levels of scarcity for the critical products and services the segment provides." Meanwhile, sales of completion and production solutions rose 5% from the second quarter, which was at the high end of the guidance range. Driving that growth were the segment's land-related businesses, which benefited from higher demand in North America and the Middle East.
Overcoming the storms
National Oilwell Varco battled two very different storms during the quarter, coming out ahead both times. The company faced a quite literal headwind in the form of Hurricane Harvey, which CEO Clay Williams said caused a "significant disruption" of industry activities "along the Gulf Coast." It also faced more figurative headwinds in the form of a renewed slump in oil prices during the first part of the quarter, which caused a "retrenchment in rig equipment demand," according to Williams, and was the reason the company's rig-systems and rig-aftermarket segments underperformed expectations.
However, the company overcame these storms by posting stronger sales out of its land-focused wellbore technologies and completion and production solutions segments. One of the factors driving those sales is new products, which Williams pointed out were "gaining traction globally." For example, the company stated in the earnings release that "increased market adoption of the [wellbore technologies] segment's new technology introductions resulted in revenue growth that outpaced rig count growth in the same period."
These new products not only drove higher sales but are more profitable. That helped push adjusted EBITDA 18% higher during the quarter to $167 million, or 9.1% of sales. Sustained sales growth for these higher-margin products should help National Oilwell Varco start generating net income once again.
Baby steps but still progress
Despite the quarter's unexpected challenges, National Oilwell Varco continued its momentum. That could accelerate in the coming quarters because customers are increasingly adopting the company's latest products, which not only help make them more money -- by making them more efficient -- but they are more profitable for National Oilwell Varco. So, unless oil takes another nosedive, revenue should continue its steady climb, and the company could be back in the black within a quarter or two.