National-Oilwell Varco, Inc. (NYSE:NOV) reported a third quarter 2016 net loss of $1.36 billion, or $3.62 per share. Excluding other items, net loss for the quarter was $128 million, or $0.34 per share. Other items totaled $1.09 billion, pretax, consisting of a $972 million goodwill impairment and $116 million of other charges primarily associated with severance, facility closures and write-offs of certain assets. Other items, net of tax, totaled $1.23 billion and included a $213 million valuation allowance against foreign tax credits.
Revenues for the third quarter of 2016 were $1.65 billion, a decrease of five percent compared to the second quarter of 2016 and a decrease of 50 percent from the third quarter of 2015. Operating loss for the third quarter was$1.19 billion, or 72.1 percent of sales. Excluding other items, operating loss was $108 million, or 6.6 percent of sales. Adjusted EBITDA (operating profit excluding other items before depreciation and amortization) for the third quarter was $68 million, or 4.1 percent of sales, an increase of $43 million from the second quarter of 2016.
“Our ability to post a higher Adjusted EBITDA on a five percent sequential decline in revenue was the result of our team’s continued progress in improving our efficiencies and lowering our costs,” commented Clay Williams, Chairman, President and CEO. “While consolidated revenues continued to contract in the third quarter, two of our four reporting segments posted sequential revenue growth, and three of our four segments posted higher margins.”
“We are encouraged by the early signs of a recovery in the North American marketplace. Our short cycle businesses within our Wellbore Technologies Segment account for over 80% of total segment revenue. Within North America these posted sequential revenue growth of approximately 15%. Even though international, offshore and capital equipment markets remain challenging, we believe declining global production and improving commodity prices are setting the stage for a broader recovery in 2017. In the meantime, we continue to aggressively reduce costs, improve efficiencies, and invest in our comprehensive technology portfolio. So far in 2016 we have added significant new technologies in completion tools, directional drilling tools, condition-based monitoring services and drilling optimization services. All are winning significant customer interest, and all better position NOV for the inevitable recovery.”
Rig Systems generated revenues of $470 million in the third quarter of 2016, a decrease of 17 percent from the second quarter of 2016 and a decrease of 69 percent from the third quarter of 2015. Operating loss was $962 million, which includes the Company’s charge against goodwill. Adjusted EBITDA was $50 million, or 10.6 percent of sales, an increase of two percent sequentially and a decrease of 84 percent from the prior year.
Backlog for capital equipment orders for Rig Systems at September 30, 2016 was $2.76 billion. New orders during the quarter were $185 million, representing a book-to-bill of 51 percent when compared to the $363 millionshipped out of backlog.
Rig Aftermarket generated revenues of $322 million, down 12 percent from the second quarter of 2016 and down 44 percent from the third quarter of 2015. Operating profit was $72 million, or 22.4 percent of sales. Adjusted EBITDA was $81 million, or 25.2 percent of sales, an increase of 11 percent sequentially and a decrease of 51 percent from the prior year.
Wellbore Technologies generated revenues of $526 million, an increase of three percent from the second quarter of 2016 and a decrease of 37 percent from the third quarter of 2015. The segment reported an operating loss of$94 million, or 17.9 percent of sales. Adjusted EBITDA was $26 million, or 4.9 percent of sales, an increase of $25 million sequentially and a decrease of $100 million from the prior year.
Completion and Production Solutions
Completion and Production Solutions generated revenues of $543 million, an increase of one percent from the second quarter of 2016 and a decrease of 32 percent from the third quarter of 2015. The segment reported an operating loss of $61 million, or 11.2 percent of sales. Adjusted EBITDA was $43 million, or 7.9 percent of sales, down 25 percent sequentially and down 66 percent from the prior year.
Backlog for capital equipment orders for Completion and Production Solutions at September 30, 2016 was $812 million, down 14 percent from the second quarter of 2016, and down 31 percent from the end of the third quarter of 2015. Revenues out of backlog during the quarter were $319 million. New orders were $184 million, achieving a book-to-bill of 58 percent.
Significant Events and Achievements
NOV entered into an agreement with Akastor ASA (OSE: AKA) to acquire Fjords Processing (“Fjords”), a global leader in the provision of processing technology, systems and services to the upstream oil and gas industry. The acquisition provides technology that is complementary to NOV’s Process and Flow Technology Business Unit, which provides production and process solutions. The combined operations will be able to leverage the collective organizations’ global infrastructure and channels to market.
NOV Rig Systems received two new land rig orders during the third quarter, including an order for a state-of-the-art Extended Reach Drilling (ERD) rig for Alaska’s North Slope. This highly-specialized rig will be able to drill to 33,000-plus feet, or 6.25 miles, as compared to the approximate 22,000-foot, or 4.17 mile, reach of current rigs utilized by the production company.
NOV was awarded a study for its HoneyBee FPSO, as the Company continues to advance its FPSO strategy and garner interest from operators. The HoneyBee design is a smaller, more flexible design that enables economic production and testing from initial wells in a field and economic full development of marginal fields.
NOV was awarded new contracts in the North Sea and Asia Pacific for its Hot Oil Thermal Desorption Units (HTDU), which enables the safe and efficient treatment of oil-based mud drill cuttings. NOV’s HTDU technology cleans cuttings to meet zero discharge requirements, and recovers oil for reuse in drilling fluid. NOV is the worldwide leader in the design, manufacture, operation and use of this environmentally-friendly technology that allows customers to operate in increasingly stringent regulatory environments.
NOV designed and manufactured a record-setting string of 2-5/8-inch coiled tubing measuring 25,595 feet and 149,748 pounds for a service company in the Permian basin. This record-setting string enabled the customer to mill out composite bridge plugs and perform logging runs in a well with a 12,500-foot lateral, far beyond the typical maximum lateral lengths for coiled tubing mill outs in West Texas. Every step of the process, including string design, planning, milling and shipping, and spooling and installation, was executed by NOV’s trained engineers and technicians in less than 10 days.
NOV launched its XTH™ power section elastomer which complements the Company’s high-performance motor product line. The new elastomer has increased fluid resistance and enhanced mechanical properties designed to provide more power and longer life for extreme drilling environments.
Six NOV technologies were selected as 2016 World Oil Awards Finalists, and the Company’s BlackStream™ along-string measurement (ASM) tool was named the “Best Data Management & Application Solution” award winner. The BlackStream ASM tool acquires temperature, annular and bore pressure, rotational velocity, and three-axis vibration data at high frequencies to identify drilling challenges in real time. The tool is designed to connect to IntelliServ™ networked drillstring, another World Oil Award Finalist, to provide streaming visualization of downhole data.
NOV recently launched its BlackStar™ II dual-telemetry MWD system which combines the capabilities of electromagnetic (EM) and mud-pulse data transmission in one tool, allowing customers to switch transmission modes while the tool is downhole to avoid costly trips to change out equipment and maximize uptime. On customer trials in West Texas, the tool was used from the kickoff point at 7,800 feet to a total depth of 15,878 feet, maintaining the EM signal the whole time due to the tool’s enhanced power capabilities that expand the possible utilization of EM telemetry.
Other Corporate Items
As of September 30, 2016, the Company had $1.51 billion in cash and cash equivalents and total debt of $3.22 billion, a decrease of $64 million from June 30, 2016. NOV had $4.5 billion available on its revolving credit facility as of September 30, 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 September 30, 2016 NOV had a debt-to-capitalization ratio of 17.8% percent. (Original Source)
Shares of National-Oilwell Varco are currently trading at $34.11, down $2.45 or -6.70%. NOV has a 1-year high of $40.24 and a 1-year low of $25.74. The stock’s 50-day moving average is $35.04 and its 200-day moving average is $33.32.
On the ratings front, NOV has been the subject of a number of recent research reports. In a report issued on October 6, BMO analyst Daniel Boyd maintained a Sell rating on NOV, with a price target of $27, which implies a downside of 26% from current levels. Separately, on October 3, Citigroup’s Scott Gruber downgraded the stock to Sell and has a price target of $30.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Daniel Boyd and Scott Gruber have a total average return of 3.8% and a return of 12.3% respectively. Boyd has a success rate of 66% and is ranked #1283 out of 4188 analysts, while Gruber has a success rate of 69% and is ranked #201.
Overall, 4 research analysts have rated the stock with a Sell rating, 4 research analysts have assigned a Hold rating and 2 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $30.20 which is -17.4% 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, and Completion and Production Solutions.