National-Oilwell Varco, Inc. (NYSE:NOV) reported a first quarter 2016 net loss of $21 million, or $0.06 per share, excluding other items. Other items included $147 million in pre-tax charges primarily associated with severance and facility closure costs. GAAP net loss for the quarter was $119 million, or $0.32 per share.
Revenues for the first quarter of 2016 were $2.19 billion, a decrease of 20 percent compared to the fourth quarter of 2015 and a decrease of 55 percent from the first quarter of 2015. Adjusted EBITDA (as defined below) for the first quarter was $127 million, or 5.8 percent of sales. Decremental Adjusted EBITDA margin (the change in Adjusted EBITDA as a percent of the change in revenue) from the fourth quarter of 2015 to the first quarter of 2016 was 37 percent. Operating loss, excluding other items, was $48 million.
“Oil prices and oilfield activity continued to plummet during the first quarter of 2016, causing our customers to cut spending to bare minimum levels,” stated Clay C. Williams, Chairman, President and CEO of National Oilwell Varco. “The fifth quarter of this extraordinary downcycle saw our revenues decline sharply once again, leading us to intensify our cost reduction efforts. While this market has been very tough on our business, I am grateful for the leadership and perseverance demonstrated by National Oilwell Varco’s tremendous employees. Better days lie ahead. Our strong financial resources enable us to continue to invest in new technologies, products and acquisitions that better position us for the inevitable upturn.”
Segment Results (excluding other items)
To provide a clearer measurement of segment performance, the Company will no longer allocate certain corporate overhead costs to its segments and is now capturing those costs in “Eliminations and corporate costs”. Prior periods are shown on a comparable basis. For the quarters ended March 31, 2016, December 31, 2015 and March 31, 2015 the corporate overhead costs were $50 million, $57 million, and $67 million, respectively.
Rig Systems generated revenues of $926 million in the first quarter of 2016, a decrease of 9 percent from the fourth quarter of 2015 and a decrease of 63 percent from the first quarter of 2015. Adjusted EBITDA was $137 million, or 14.8 percent of sales, down 36 percent sequentially and down 75 percent from the prior year. Operating profit was $119 million, or 12.9 percent of sales.
In light of the recently announced vote by the shareholders of SETE Brasil Participacoes SA to authorize Sete to file for bankruptcy, the Company removed from its backlog all amounts associated with its 15 Brazilian floater contracts. The total removed from backlog, $2.09 billion, also included certain other orders for which NOV has not received payment in over a year. Contracts with all of these customers remain in place and are enforceable. If these customers provide funding to continue their projects, the Company will resume construction and update the backlog accordingly. With this reduction, backlog for capital equipment orders for Rig Systems at March 31, 2016 was $3.31 billion. New orders during the quarter were $97 million, representing a book-to-bill of 13 percent when compared to the $770 million shipped out of backlog.
Rig Aftermarket generated revenues of $391 million, down 31 percent from the fourth quarter of 2015 and a decrease of 46 percent from the first quarter of 2015. Adjusted EBITDA was $82 million, or 21.0 percent of sales, down 43 percent sequentially and down 62 percent from the prior year. Operating profit was $77 million, or 19.7 percent of sales.
Wellbore Technologies generated revenues of $631 million, down 17 percent from the fourth quarter of 2015 and down 46 percent from the first quarter of 2015. Adjusted EBITDA was $43 million, or 6.8 percent of sales, down 44 percent sequentially and down 82 percent from the prior year. The segment reported an operating loss of $53 million for the first quarter of 2016.
Completion and Production Solutions
Completion and Production Solutions generated revenues of $558 million, down 25 percent from the fourth quarter of 2015 and down 41 percent from the first quarter of 2015. Adjusted EBITDA was $48 million, or 8.6 percent of sales, down 46 percent sequentially and down 72 percent from the prior year. The segment reported an operating loss of $4 million for the first quarter of 2016.
Backlog for capital equipment orders for Completion and Production Solutions at March 31, 2016 was $994 million, up 3 percent from the fourth quarter of 2015, and down 32 percent from the end of the first quarter of 2015. Revenues out of backlog during the quarter were $330 million. New orders were $328 million, achieving a book-to-bill of 99 percent, and the effect of foreign currency adjustments was $27 million.
Significant Events and Achievements
NOV achieved several key wins related to its eVolve™ optimization and closed loop drilling automation services, notably the completion of an 18-month project in the North Sea with a major integrated oil company. NOV’s suite of tools provided the customer with high-speed streaming of downhole data used to accurately analyze wellbore conditions, which enabled the customer to extend reservoir exposure (lateral length) well beyond planned design, eliminating the need for an additional well which was part of the original project plan. NOV was recently awarded a contract for downhole drilling automation with an independent E&P customer in Western Canadaand was awarded a five year project by a national oil company in North Africa for real-time drilling data acquisition, visualization and optimization.
NOV introduced the RIGSENTRY™ remote monitoring service, the first end-to-end predictive solution that can foresee certain operational failures in subsea blowout preventer (BOP) components up to 14 days in advance. With its ability to identify the specific point of failure and alert customers earlier than a human operator or other traditional detection techniques, RIGSENTRY™ will result in more efficient maintenance practices and reduced unplanned downtime.
NOV completed the acquisition of Tolteq Group LLC, a developer and manufacturer of Measurement While Drilling (MWD) tools and equipment. The acquisition allows the Company to rent or sell a complete bottom hole assembly (BHA) to service companies and operators; and, less than a month after acquisition, NOV delivered a rental BHA to an independent oil company in the Eagle Ford that includes its MWD kit, high-torque drilling motor, and Helios drill bit.
NOV completed the acquisition of TracID AS, which offers Radio Frequency Identification (RFID) tags for downhole applications and associated asset management software. The tags are capable of withstanding harsh downhole conditions for extended periods of time and have been installed in over 40,000 drillstring components to date. The technology, when combined with NOV’s existing premium tubular and services offerings, will enhance lifecycle and asset management for drillstring owners.
NOV recently provided a turnkey composites package for an offshore platform in the North Sea that reduced topside weight and corrosion risk. NOV provided the technical specifications, engineering, installation, and field service support of 3,000 meters of BONDSTRAND GRE piping, phenolic structures and grating, composite pressure vessels, and handrails, resulting in over 700 tons of weight saved. NOV also provided the topside drilling equipment package on the platform.
Following the recent introduction of NOV’s large pipe product line, the Company built and delivered an industry-first 7-5/8″ drill pipe riser string for use by a major international oil company during the quarter. The pipe can be used either as a completion landing string within the marine riser or as an intervention riser string in open water. Rugged and capable of deploying quickly, these strings offer a cost-effective means for offshore completion, intervention and plug and abandonment activities requiring big bores.
During the first quarter of 2016, NOV delivered its 2,000th model TDS-11SA top drive, further contributing to NOV’s industry leading installed base. The TDS-11SA’s performance and reliability has made it the best-selling top drive in the world.
Other Corporate Items
During the first quarter of 2016, NOV generated $621 million in cash flow from operations. Free cash flow totaled $363 million after deducting $173 million in dividends, $84 million for non-acquisition related capital expenditure investments and $21 million for acquisitions, and adding a foreign exchange benefit and other items totaling $20 million. As previously reported, the Company announced a plan to reduce its quarterly dividend to$0.05 per share which is expected to preserve approximately $615 million per year in future cash flow for investments in future growth opportunities.
As of March 31, 2016, the Company had $1.76 billion in cash and cash equivalents and total debt of $3.38 billion, a decrease of $530 million from December 31, 2015. NOV had $4.29 billion available on its revolving credit facility as of March 31, 2016. The unsecured facility, which matures in September of 2018, is subject to one primary covenant which is a maximum debt-to-capitalization ratio of 60 percent. As of March 31, 2016 NOV had a debt-to-capitalization ratio of 17.1 percent. (Original Source)
Shares of National-Oilwell Varco closed yesterday at $31.7, up $2.33 or 7.93%. NOV has a 1-year high of $56.13 and a 1-year low of $25.74. The stock’s 50-day moving average is $30.42 and its 200-day moving average is $32.47.
On the ratings front, NOV has been the subject of a number of recent research reports. In a report released yesterday, Morgan Stanley analyst Ole Slorer reiterated a Buy rating on NOV, with a price target of $45, which implies an upside of 42.0% from current levels. Separately, on April 20, Barclays’ David Anderson downgraded the stock to Hold and has a price target of $33.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Ole Slorer and David Anderson have a total average return of -3.8% and -4.5% respectively. Slorer has a success rate of 47.1% and is ranked #3314 out of 3839 analysts, while Anderson has a success rate of 42.0% and is ranked #3325.
Overall, one research analyst has rated the stock with a Sell rating, 5 research analysts have assigned a Hold rating and one research analyst has given a a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $30.00 which is -5.4% under where the stock closed yesterday.
National Oilwell Varco, Inc. provides equipment and components that are used in oil and gas drilling and production operations, oilfield services, and supply chain integration services to the upstream oil and gas industry. The company operates through the following segments: Rig Systems, Rig Aftermarket, Wellbore Technologies, Completion and Production Solutions.