Crude prices crashed 40% at the end of last year, which forced oil companies to reduce spending heading into 2019. That negatively impacted the sale of equipment and other products to the industry, which weighed on National Oilwell Varco's (NOV -0.61%) first-quarter results. Oil prices, however, have since recovered sharply, propelling a pickup in orders late in the quarter. That should fuel stronger results for the oil-field equipment maker in the coming quarters.

Drilling down into the results

Metric Q1 2019 Q1 2018 Q4 2018


$1.9 billion

$1.8 billion

$2.4 billion

Net income

($77 million)

($68 million)

$12 million

Earnings per share




Data source: National Oilwell Varco.

National Oilwell Varco endured two notable headwinds during the first quarter. First, oil-field service customers cut spending due to slumping oil prices at the end of last year, which impacted the demand for new equipment. On top of that, offshore-focused sales declined after customers accelerated equipment deliveries into the fourth quarter. Those two issues caused revenue to drop sharply from the fourth quarter, while also negatively impacting earnings, which missed the consensus estimate by $0.12 per share.

There were, however, some bright spots across all three of the company's operating segments:

National Oilwell Varco's revenue by segment in the first quarter of 2019 and 2018 as well as 2018's fourth quarter.

Data source: National Oilwell Varco. Chart by the author.

Wellbore technologies delivered mixed first-quarter results as revenue slumped 9% sequentially but improved 14% compared to the year-ago period. The sharp decline in oil prices late last year amplified the typical seasonal slowdown the company experiences during the first quarter. On a more positive note, the improvement in crude prices during the quarter drove a rapid acceleration in orders for drill pipe in March.

Completion and production solutions revenue tumbled 26% from the fourth quarter and 13% year over year. The primary issue was timing as some customers pulled orders forward into last year's fourth quarter to use up their budgets while others deferred deliveries. National Oilwell Varco did book $470 million of orders during the quarter, which was 149% of what it shipped out of its backlog. That should drive future sales growth.

Revenue from the rig technologies segment plunged 25% from the fourth quarter but surged 25% year over year. Driving the sequential decline were lower contributions from offshore projects, fewer equipment deliveries, and a seasonal decline in service and repair work. Partially offsetting those negatives was $271 million in new orders, which was 110% of what the company shipped out of its backlog, again implying future sales growth.

Drilling rigs lit up at dusk.

Image source: Getty Images.

A look at what management sees ahead

CEO Clay Williams noted that the volume of orders for new capital equipment "fell sharply in late 2018 and remained sparse through the first two months of the year." However, he noted that "customer confidence improved month-by-month through the first quarter as commodity prices strengthened." That led to a "strong order acceleration in March," which "enabled NOV to post a sequential increase in bookings." That helped drive an improvement in the company's outlook for the second quarter as well as the remainder of 2019.

Williams further stated that "while we expect modestly improving activity in international and offshore markets, along with growing market penetration for NOV's proprietary technologies and services, capital austerity in the North American land market leaves our near-term outlook uncertain." Because of that, the company will remain focused on keeping a lid on costs to improve its profitability.

Another blip in the recovery

National Oilwell Varco's quarterly results have bounced around quite a bit in recent quarters due to the impact oil price volatility has had on the industry. However, with oil prices rebounding sharply to start this year, demand for oil-field equipment should improve in the coming quarters, which was already evident in the uptick in orders that National Oilwell Varco experienced in March. As a result, the company should deliver much stronger results throughout the year as long as oil prices don't tumble again.