Shares of National Oilwell Varco (NYSE:NOV) have let go of some recent gains because the company didn't have the blowout quarter that some on the Street were expecting. Pressure had been building on the company after positive earnings from both Halliburton (NYSE:HAL) and FMC Technologies (NYSE:FTI), which likely heightened unspoken expectations in the days leading up to its release. Let's drill down deeper into the quarter and then look ahead at what investors can expect.
Despite revenue growing 23% year over year, it still fell short on both the top and bottom lines. Revenue was actually down 7% quarter over quarter to $5.31 billion, while operating profit slipped 14% over last quarter and 7% over last year. Margins were crimped due to shorter rig completion times, and the inability to charge a premium for them. Thus, overtime added to overhead costs. The quarter was further affected by transaction costs relating to the Robbins & Meyers acquisition as well as Venezuelan currency devaluation charges.
Earnings came in at $1.17 per share, or $1.29 after items, with the big hit being a $73 million currency charge. There's good news ahead, though, as the company announced $3.04 billion in new capital equipment orders which brings its backlog up to $12.9 billion. This exceeds the company's previous record backlog hit in the third quarter of 2008 by over a billion dollars, and speaks of very good things to come for the company this year.
Investors, however, were expecting more after Halliburton reported record quarterly earnings of $7 billion while enjoying margin expansion. Pricing headwinds and the continued decline in rig count were more than offset by the company's expanding international operations. Meanwhile, FMC Technologies saw its revenue jump 18% over the prior quarter and believes it's on pace for a record year. Overall, the industry continues to expect brisk business throughout 2013.
The fact that these companies had a great quarter really bodes well for National Oilwell Varco's future. Company CFO Jeremy Thigpen, on the company's earnings conference call, highlighted that its business performance typically lags service companies and drilling contractors by about a quarter. This means the second quarter could be the blowout that investors were expecting. Better yet, the rest of 2013 looks positive as most service and drilling contractors are bullish.
National Oilwell Varco's backlog as I mentioned remains strong and CEO Pete Miller spoke with great confidence about the near-term prospects of the company. He sees good things happening in the shales of China, positives in Latin American markets especially a pickup by PEMEX and positive activity in Brazil and finally, big opportunities in Russia. International markets are were most of the growth is these days as North America continues to be affected by lower natural gas prices and infrastructure congestion which is impacting the price of both oil and NGLs.
So, while the quarter came in a bit light, the future for National Oilwell Varco looks very bright. In addition to the company's backlog and the strength internationally, there is further upside potential if the North American market starts to really pick up, which could become a reality if the price of natural gas keeps heading higher. The company is exceptionally well-positioned to capture growth opportunities across the world as elevated energy prices entice exploration and production companies to invest in new equipment. National Oilwell Varco might have had a down quarter, but it's certainly not out