CCLP CSI Compressco LP

Global large-cap energy equipment maker, National Oilwell Varco (NOV) reported better-than-expected fourth-quarter earnings, aided by robust activity levels as well as good project execution skills. Every segment of the company managed to improve revenues and operating profit over the year-ago period.

Earnings per share (excluding transaction costs) came in at $1.49, exceeding the Zacks Consensus Estimate by a nickel and comfortably beating the year-ago adjusted profit by 9.0%. Quarterly revenue jumped 33.5% year over year from $4,259.0 million to $5,685.0 million and also managed to beat our projection of $5,298.0 million.

For its fiscal year ended Dec 31, 2012, National Oilwell reported per share adjusted profits of $5.91, above the Zacks Consensus Estimate of $5.86 and 24.0% higher than year-ago adjusted profit. Revenues of $20.0 billion were 36.7% above the prior-year figure and Zacks Consensus Estimate of $19.7 billion.

Segmental Performance

Rig Technology: Revenue in the Rig Technology segment surged 25.0% year over year to $2,896.0 million, while revenue out of backlog was up 25% from the corresponding period last year.

The segment’s operating profit was up 7.5% year over year to $648.0 million. Rig Technology’s profitability during the quarter was helped by higher demand for capital equipment used for newbuild offshore rigs. However, operating margin was recorded at 22.4%, dipping from 26.0% in the year-ago period.

Petroleum Services & Supplies: The company’s Petroleum Services & Supplies segment achieved revenues of $1,770.0 million, up 12.7% from the year-ago period, while operating profit climbed 17.9% from the fourth quarter of 2011 to $355.0 million.

Operating margin stood at 20.1% versus 19.2% in the year-ago quarter. The positive comparisons were due to higher demand for products and services provided by the segment, buoyed by improved oilfield activity.

Distribution & Transmission: Distribution & Transmission revenues climbed 126.4% year over year to $1,268.0 million. Operating profit was $78 million, compared with $45 million in the year-earlier quarter. However, operating margin came in at 6.2%, down from 8.0% in the year-ago.

Backlog

Backlog for capital equipment orders for the company’s Rig Technology segment was $11,860.0 million at Dec 31, 2012, up 2% from the previous quarter level.

Balance Sheet

At the end of the fourth quarter, the company’s cash on hand stood at $3,319.0 million and debt reached $3,149.0 million. The debt-to-capitalization ratio came in at approximately 13.4%.

Zacks Rank

The company currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

National Oilwell Varco is one of the biggest manufacturers of drilling equipment in the world with an impressive business model. The company’s large installed base of rigs worldwide provides a steady recurring revenue stream through demand for maintenance, parts and other expendable products.

Additionally, the growing search for oil into new deepwater frontiers has significantly increased the demand for rigs capable of tackling the immense challenges of drilling in a mile or more of water. National Oilwell Varco is well positioned to supply such technologically-advanced production equipment.

However, National Oilwell Varco relies on its ability to develop and acquire essential products and technologies that drive its operational performance and growth. If the company’s technologies and/or products become obsolete, or if it fails to bring these to market in a timely and competitive manner, it may face severe operational and financial dilemmas.

Meanwhile, there are certain other oilfield service companies in the energy sector that are expected to perform well in the coming one to three months. These include Compressco Partners, L.P. (GSJK) with a Zacks Rank #1 (Strong Buy) and Hornbeck Offshore Services Inc. (HOS) and RPC, Inc. (RES) – both with Zacks Rank #2 (Buy).
 

 
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