While oil prices bounced back sharply during the first quarter, the oil equipment market faced several headwinds during the period. Despite those issues, equipment distributor NOW (NYSE:DNOW) delivered improving results in the quarter. While some positives are starting to emerge thanks to that uptick in oil prices, the company will continue to battle several headwinds throughout the year, which will likely mute its full-year results.

NOW results: The raw numbers

Metric

Q1 2019

Q1 2018

Year-Over-Year Change

Revenue

$785 million

$764 million

2.7%

Adjusted net income

$13 million

$1 million

1,200%

Adjusted EPS

$0.12

$0.01

1,100%

EPS = earnings per share. Data source: NOW.

What happened with NOW this quarter? 

A pickup in shale drilling helped drive results:

  • The company hauled in $600 million of revenue from U.S. customers during the quarter, which was up 6.8% compared to the year-ago period and 3.6% from the fourth quarter. The company benefited from an increase in drilling activities across several U.S. shale plays during the period, which not only drove sales to upstream customers but those in the midstream sector as well.
  • Canadian revenue was $86 million during the quarter, which slipped 2.3% year over year while dropping 15.7% compared to the fourth quarter. Driving the decline were foreign exchange fluctuations and a government-mandated production curtailment due to the lack of pipeline capacity to move oil out of the country.
  • Other international revenue came in at $99 million. That's up 2.1% from last year and 1% lower than the fourth quarter. The company benefited from increased drilling activity in Asia, the U.K., and West Africa.
  • The improvement in sales, as well as the company's ability to keep a lid on costs, boosted margins and profitability during the quarter.
A stack of pipelines with a blue sky in the background.

Image source: Getty Images.

What management had to say 

CEO Robert Workman commented on the company's results. He stated that: "We are excited that the organization was able to generate year over year and sequential revenue growth, especially considering the slowdown in completions in North America at the end of 2018 and persistent takeaway issues in both the Permian Basin and Canada. Top line improvements with midstream customers and increased activity with offshore operators and drilling contractors aided in producing these results."

The company battled against two notable headwinds during the first quarter. Oil price volatility at the end of last year caused most drillers to reduce their spending plans for 2019. On top of that, the midstream industry has struggled to keep up with the demand for pipeline capacity due to continued opposition in Canada and rapid growth in the Permian Basin. Both issues impacted the need for the products and equipment NOW distributes to customers.

The company, however, overcame these issues thanks to strong demand by midstream companies as they work to build out new infrastructure to support production growth. In addition, the offshore drilling market is finally starting to improve after years of declines.

Looking forward 

CEO Robert Workman noted that the company sees both positives and negatives up ahead. He stated that "while land rig activity in North America has declined recently, the shift of budgets to completions, in addition to order bookings for midstream projects and pipeline pumps to be delivered later in the year, may offset some of the headwinds expected in North America." Overall, however, the company still anticipates that full-year revenue will be flat to slightly lower compared to last year.