Shares of NOW ( DNOW 3.06% ) jumped more than 11% by 3 p.m. EST on Wednesday. The main factor driving the rally of the equipment distributor, which is focused on the energy industry, was its third-quarter earnings report.
On the one hand, the continued challenges in the oil and gas market hurt NOW's results as its revenue slumped 8.6% year over year to $715 million, falling about $13 million short of expectations. Adjusted net income, however, came in at $9 million, or $0.08 per share, which is $0.01 per share ahead of the consensus estimate. Driving that stronger-than-expected earnings result was the company's efforts to reduce costs.
Those initiatives also enabled NOW to generate $101 million in cash flow from operating activities during the quarter, including $97 million in free cash. That pushed its cash position up to $113 million against no long-term debt.
The company's cash-rich balance sheet gives it the flexibility to navigate through the current market conditions. It will need it, given that they "have become more challenging as we close out 2019," according to comments by interim CEO Dick Alario in the earnings release.
The company worked hard during the third quarter to drive down costs to boost its earnings. That allowed it to generate strong free cash flow, which enabled it to become debt-free in the quarter. Because of that, it's in a strong position to not only continue navigating the challenging oil market but also capture opportunities to expand through additional acquisitions.