National Oilwell Varco (NYSE:NOV) finished 2017 with its best quarter of the year, delivering a 7% improvement in revenue and further narrowing its net loss. Fueling those results was an uptick in oil prices during the quarter, which gave energy companies more money to spend on equipment. That trend should continue in 2018 considering that oil remains at its best level in years, which could finally nudge the oil-field equipment maker back into the black later this year.

Drilling down into National Oilwell Varco's results

National Oilwell Varco reported $1.97 billion in revenue, which was 7% higher than last quarter and up 16% versus the year-ago period. That said, the company did still report a net loss of $14 million, or $0.04 per share, though that was an improvement from previous quarters. Furthermore, while the company hasn't yet returned to profitability, it is generating cash flow, producing $321 million during the quarter.

All three of the company's segments showed improvement this quarter:

A chart showing National Oilwell Varco's revenue by segment in the fourth quarter of 2017 and 2016 as well as the third quarter of 2017.

Data source: National Oilwell Varco. Chart by author. Note: In millions of dollars.

The biggest sequential improvement came from the company's newly combined rig technologies segment, which brought together its former rig systems and rig aftermarket businesses. Those two operating groups struggled for much of last year but turned things around in the fourth quarter as expected after customers took delivery of some deferred sales and increased their orders. In addition to that, the company also benefited from a seasonal improvement in service and repair work. Overall, sales were up 20% versus the third quarter, though only fractionally higher year over year when the company was still working off a large backlog of legacy orders.

The wellbore technologies segment, meanwhile, continued delivering improving results, thanks to strong demand for its products, technologies, and services. Overall, sales were up 3% sequentially and an even more impressive 35% above last year's fourth quarter.

The completion and production systems segment also posted higher revenue, which rose 1% from last quarter. That said, this increase was a bit of a disappointment since the company initially expected mid-single-digit revenue growth in the quarter. It fell short of that guidance due to some engineering challenges and delivery delays associated with a new product. However, it still overcame those issues to post higher revenue, thanks to an increase in deliveries for pressure pumping equipment, which are used to frack shale wells.

A close-up of drill pipes with oil workers and a rig in the background.

Image source: Getty Images.

What management had to say

While National Oilwell Varco reported another loss last quarter and remained in the red all year, its underlying profitability has improved dramatically over the past year. CEO Clay Williams noted in the earnings release that full-year revenue edged up $53 million versus 2017 to $7.3 billion. However, he also pointed out that the company's adjusted EBITDA improved $237 million to $611 million, thanks to "solid execution and success in our efforts to reposition the company," according to the CEO.

One of the drivers of the improvement in profitability has been the shift in the company's product mix toward land-based equipment, which now accounts for 65% of the total, with 44% of that coming from North America. The rebound in shale drilling helped drive that shift, though the company boosted its prospects by developing products to meet the unique needs of those customers. For example, the equipment maker noted that it sold its first two strings of IntelliServ wired drill pipe to a major North American land drilling contractor during the quarter.

However, the North American onshore market is just one of the many areas where the company has laid the groundwork so it can drive future growth. For example, it acquired a provider of offshore construction solutions during the quarter and also won orders for several new products. "Advances on these and other initiatives have us well positioned to capitalize on improving industry fundamentals in 2018 and beyond," according to Williams.

Almost there

National Oilwell Varco is closing in on a return to profitability, which could happen in early 2018 if crude prices don't tumble. While it's still a long way from the glory days when it was earning hundreds of millions of dollars per quarter by outfitting expensive offshore drilling rigs with equipment, it's taking steps in the right direction. Meanwhile, the improvement in its business prospects could begin accelerating this year if crude holds up because that would give customers more cash to spend on refreshing their aging equipment.

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