National Oilwell Varco (NOV 1.03%) reported its second-quarter results before the market opened on Tuesday. While results were much lower than previous quarters, the oil-field equipment maker delivered stronger than expected results. Driving these results were its strong contract backlog as well as cost cutting initiatives, without which the quarter would have been far worse.
A look at the numbers
National Oilwell Varco reported revenue of just over $3.9 billion for the quarter. While that was 19% lower than last quarter and 26% below the second quarter of last year, it did manage to beat analysts' estimates by roughly $50 million.
Also beating estimates were earnings, which after being adjusted for one-time charges, which included pre-tax severance and facility closure charges, came in at $301 million, or $0.77 per share. While that was well off the $1.47 per share the company earned in the second quarter of last year, adjusted earnings did beat analysts' expectations by $0.13 per share.
Here's a breakdown of the company's revenue and profitability by segment:
|
|
Revenue |
|
Operating Profit |
Operating Profit % | ||
|---|---|---|---|---|---|---|
|
Segment |
2Q15 |
2Q14 |
2Q15 |
2Q14 |
2Q15 |
2Q14 |
|
Rig Systems |
$1,930 |
$2,372 |
$395 |
$501 |
20.5% |
21.1% |
|
Rig Aftermarket |
$657 |
$785 |
$145 |
$217 |
22.1% |
27.6% |
|
Wellbore Technologies |
$956 |
$1,446 |
$47 |
$269 |
4.9% |
18.6% |
|
Completion & Production Systems |
$873 |
$1,127 |
$81 |
$158 |
9.3% |
14% |
Source: National Oilwell Varco press release. (Note: In millions of dollars.)
As that chart notes the company's key Rig Systems segment endured a revenue decline of 19% year-over-year. However, that decline could have been worse as most of this segment's revenue was a result of the company's backlog as it converted $1.7 billion of its backlog into revenue during the quarter. That said, the backlog did decline as the company was only able to add $313 million in new order bookings, however, that was $77 million better than last quarter, though the overall backlog slipped 13% to $9 billion. The other item worth noting in the segment was the fact that margins held up fairly well as a result of the company's cost saving initiatives. Unfortunately, margins weren't able to hold up across all the company's segments, which resulted in a one-two punch to profitability as revenue also declined across the board.
One other segment worth highlighting is the company's Completion & Production Systems. While segment revenue declined 23% year-over-year, revenue was only down 8% over last quarter. This is the result of the fact that this is the other segment that has a backlog and during the quarter the company pulled $538 million in revenue out of that backlog. The company was also able to add $264 million in new order bookings during the quarter, but the net result of these changes pushed the backlog lower by 18% from last quarter to $1.2 billion. Still, this backlog provides the company with some revenue security during the downturn.
A look at the outlook
Looking ahead, National Oilwell Varco CEO Clay Williams said that the company expects that, "2015 will continue to be challenging." However, he also points out that the company is positioned to "perform well through the downturn" due in large part to its still solid contract backlog that currently stands at $10.2 billion. Further, the company continues to focus on reducing costs, which will make it a more efficient company over the long-term.
The company is also focused on using its overall balance sheet strength to identify investment opportunities that arise from the current downturn. At the moment, one of the most compelling opportunities it sees its buying back its own stock as the company repurchased $447 million in shares during the quarter. This buyback, when combined with cost savings and future investments, should position the company to generate profitable growth during "the inevitable upturn," according to Williams. That said, the company didn't suggest that an upturn is on the horizon, at least in 2015.
Investor takeaway
National Oilwell Varco's results have been clearly affected by the weak oil market. However, the company still managed to beat muted expectations on the back of its solid contract backlog and cost saving initiatives. As a result, the company remains well positioned to meet the challenges of 2015 while it continues to position its business for the future rebound.
