National Oilwell Varco Backlog Sets Rig Stock Standards (NOV, BHI, RIG)

Excluding special items, National Oilwell Varco (NYSE:NOV) reported second quarter 2008 income of $486.5 million, or $1.20 EPS. During the quarter, the company paid $62.5 million related to its merger with Grant Prideco, took a $29 million charge for taxes related to repatriating foreign earnings, and paid $7.2 million in taxes for the sale of a Grant Prideco subsidiary. Net income including all these charges was $421.7 million, or $1.04 EPS, still a very good performance.

Analyst estimates, ignoring the special items, were for $1.13 EPS onrevenue of $3.2 billion. National’s adjusted revenue for the quarterwas $3.445 billion.

The company’s rig technology segment increased earnings 36% over thesame period a year ago, and 19% sequentially. The petroleum servicesand supplies segment increased revenues by 2% after adjusting for aninternal realignment. The distribution services segment increased itsoperating profit by 32% sequentially and 7% over the same period lastyear.

Going forward, National’s rig technology backlog grew from $9.9 billionat the end of the first quarter to $10.8 billion on a record $2.2billion in new orders. The company attributed this jump to increaseddemand for international offshore drilling rigs. Drill pipe orders alsoincreased by 19% during the second quarter.

Baker Hughes Inc (NYSE:BHI) reported good but not great numbers lastweek, and a second competitor in the oil field services sector,Transocean (NYSE:RIG) reports earnings next week. Growth estimates forBaker Hughes’s third quarter are 16.4%, more than a third lower thanthe industry as a whole. Transocean is expected to grow by nearly 3Xmore than the industry, and National is nearly flat with growthestimates. Today’s report from National will probably change thoseestimates.

National’s president and CEO said, "We remain optimistic about marketconditions for the remainder of the year." With that backlog it should remain optimistic.

Paul Ausick
July 29, 2008