National Oilwell Varco Inc. (NOV, Financial) filed Quarterly Report for the period ended 2010-09-30.
National Oilwell Varco Inc. has a market cap of $24.73 billion; its shares were traded at around $58.26 with a P/E ratio of 14.8 and P/S ratio of 1.9. The dividend yield of National Oilwell Varco Inc. stocks is 0.8%. National Oilwell Varco Inc. had an annual average earning growth of 35.5% over the past 10 years. GuruFocus rated National Oilwell Varco Inc. the business predictability rank of 4.5-star.NOV is in the portfolios of Steven Cohen of SAC Capital Advisors, PRIMECAP Management, Paul Tudor Jones of The Tudor Group, Jim Simons of Renaissance Technologies LLC, Pioneer Investments, Kenneth Fisher of Fisher Asset Management, LLC, Jeremy Grantham of GMO LLC, George Soros of Soros Fund Management LLC, Mario Gabelli of GAMCO Investors, Chuck Royce of Royce& Associates.
Worldwide, developed economies turned down sharply in late 2008 as looming housing-related asset write-downs at major financial institutions paralyzed credit markets and sparked a serious global banking crisis. Major central banks responded vigorously through 2009, but a credit-driven worldwide economic recession continues to dampen economic growth in many developed economies. As a result asset and commodity prices, including oil and gas prices, declined. After rising steadily for six years to peak at around $140 per barrel earlier in 2008, oil prices collapsed back to average $42.91 per barrel (West Texas Intermediate Crude Prices) during the first quarter of 2009, but recovered into the $70 to $80 per barrel range by the end of 2009 where they are holding steady (the third quarter of 2010 averaged $76.05 per barrel). North American gas prices declined to $3.17 per mmbtu in the third quarter of 2009 but recovered to average $4.28 per mmbtu in the third quarter of 2010. The steadily rising oil and gas prices seen between 2003 and 2008 led to high levels of exploration and development drilling in many oil and gas basins around the globe by 2008, but activity slowed sharply in 2009 with lower oil and gas prices and tightening credit availability.
As a result of these trends the Companys Rig Technology segment grew its backlog of capital equipment orders from $0.9 billion at March 31, 2005, to $11.8 billion at September 30, 2008. However, as a result of the credit crisis and slowing drilling activity, orders have declined below amounts flowing out of backlog as revenue, causing the backlog to decline to $4.9 billion by June 30, 2010. The decline was halted during the third quarter, when orders of $1.2 billion modestly exceeded revenue out of backlog. Approximately $1.2 billion of contracted backlog is scheduled to flow out as revenue during the fourth quarter of 2010; $3.3 billion in 2011, and the balance of $0.4 billion thereafter. The land rig backlog comprised 19 percent and equipment destined for offshore operations comprised 81 percent of the total backlog as of September 30, 2010. Equipment destined for international markets totaled 85 percent of the backlog. The Company experienced relatively minor levels of order cancellations since 2008 (less than four percent), and does not expect additional material cancellation of contracts or abandonment of major projects; however, there can be no assurance that such discontinuance of projects will not occur.
The Rig Technology segment revenues of $1,650 million in the third quarter of 2010 declined one percent sequentially and declined 17 percent compared to the third quarter of 2009. Segment operating profit was $478 million and operating margins were 29.0 percent during the third quarter. Compared to the second quarter of 2010, revenue declined $22 million and operating profit declined $29 million. Compared to the third quarter of 2009 decremental operating leverage or flow-through (the decrease in operating profit divided by the decrease in revenue) was 28 percent. Despite sequentially lower project revenue, project margins increased slightly as favorable cost experience on completed rig construction projects was applied to remaining estimated costs on ongoing projects, resulting in margins rising above original expectations. Many of these projects were contracted at high prices in 2007 and 2008, and are now being manufactured in much lower cost environments, and benefitting from greater project execution experience within the group. Additionally, downsizing in certain portions of our Rig Technology manufacturing infrastructure in the second half of 2009 contributed to the segments overall margin performance in the third quarter of 2010, which was modestly higher than the third quarter of 2009 despite lower volumes. Sequentially, operating margin declined 130 basis points due to mix and slightly lower volumes. Non-backlog revenue improved 17 percent from the second quarter to the third quarter of 2010, led by higher sales of capital spares. Orders for stimulation equipment, top drives, handling and lifting equipment, complete land rig packages for both domestic and international markets, and an order for two deepwater rig drilling equipment packages for Brazil led to $1,175 million in orders booked into the backlog during the third quarter. Revenue out of backlog of $1,157 million declined 8 percent sequentially. Large shale play fracture stimulation jobs in North America are consuming equipment at a more rapid pace owing to the upturn in oilfield activity and higher equipment intensity in these types of jobs. Additionally, demand is shifting to larger diameter coiled tubing strings to stimulate wells and drill out plugs, which led to demand for the Companys well-intervention equipment in the quarter. Interest in offshore rig construction appears to be ascending, and the Company submitted tenders for up to 28 deepwater rigs for Petrobras to shipyards and drilling contractors during June and July 2010. The Company does not expect to book many orders from this tender until 2011. The orders from this tender will require a high and rising level of local Brazilian content in the construction of new rigs. Customer inquiries for pressure control equipment are also trending higher, and orders for pressure control components, spares, repair and services rose during the third quarter, in response to the Macondo blowout.
Unallocated expenses and eliminations were $70 million and $204 million for the three and nine months ended September 30, 2010, respectively, compared to $54 million and $228, respectively, for the same periods in 2009. The increase for the three months comparison is primarily due to higher intercompany profit elimination related to sales between the segments. The decrease in the nine months comparison is primarily due to $46 million of voluntary retirement costs that were taken in the nine months ended September 30, 2009. This was slightly offset by higher intercompany profit elimination related to sales between the segments and an $11 million write-down of certain accounts receivable in Venezuela during the first nine months of 2010.
At September 30, 2010, the Company had cash and cash equivalents of $3,070 million, and total debt of $870 million. At December 31, 2009, cash and cash equivalents were $2,622 million and total debt was $883 million. A significant portion of the consolidated cash balances are maintained in accounts in various foreign subsidiaries and, if such amounts were transferred among countries or repatriated to the U.S., such amounts may be subject to additional tax obligations. Rather than repatriating this cash, the Company may choose to borrow against its credit facility. The Companys outstanding debt at September 30, 2010 consisted of $200 million of 5.65% Senior Notes due 2012, $200 million of 7.25% Senior Notes due 2011, $150 million of 6.5% Senior Notes due 2011, $150 million of 5.5% Senior Notes due 2012, $151 million of 6.125% Senior Notes due 2015, and other debt of $19 million.
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National Oilwell Varco Inc. has a market cap of $24.73 billion; its shares were traded at around $58.26 with a P/E ratio of 14.8 and P/S ratio of 1.9. The dividend yield of National Oilwell Varco Inc. stocks is 0.8%. National Oilwell Varco Inc. had an annual average earning growth of 35.5% over the past 10 years. GuruFocus rated National Oilwell Varco Inc. the business predictability rank of 4.5-star.NOV is in the portfolios of Steven Cohen of SAC Capital Advisors, PRIMECAP Management, Paul Tudor Jones of The Tudor Group, Jim Simons of Renaissance Technologies LLC, Pioneer Investments, Kenneth Fisher of Fisher Asset Management, LLC, Jeremy Grantham of GMO LLC, George Soros of Soros Fund Management LLC, Mario Gabelli of GAMCO Investors, Chuck Royce of Royce& Associates.
Highlight of Business Operations:
Operating profit excluding transaction charges of $2 million was $598 million or 19.9 percent of sales in the third quarter of 2010, compared to $594 million or 20.2 percent of sales in the second quarter of 2010 excluding transaction charges of $4 million. Operating profit excluding transaction and restructuring charges was $618 million or 20.0 percent of sales for the third quarter of 2009.Worldwide, developed economies turned down sharply in late 2008 as looming housing-related asset write-downs at major financial institutions paralyzed credit markets and sparked a serious global banking crisis. Major central banks responded vigorously through 2009, but a credit-driven worldwide economic recession continues to dampen economic growth in many developed economies. As a result asset and commodity prices, including oil and gas prices, declined. After rising steadily for six years to peak at around $140 per barrel earlier in 2008, oil prices collapsed back to average $42.91 per barrel (West Texas Intermediate Crude Prices) during the first quarter of 2009, but recovered into the $70 to $80 per barrel range by the end of 2009 where they are holding steady (the third quarter of 2010 averaged $76.05 per barrel). North American gas prices declined to $3.17 per mmbtu in the third quarter of 2009 but recovered to average $4.28 per mmbtu in the third quarter of 2010. The steadily rising oil and gas prices seen between 2003 and 2008 led to high levels of exploration and development drilling in many oil and gas basins around the globe by 2008, but activity slowed sharply in 2009 with lower oil and gas prices and tightening credit availability.
As a result of these trends the Companys Rig Technology segment grew its backlog of capital equipment orders from $0.9 billion at March 31, 2005, to $11.8 billion at September 30, 2008. However, as a result of the credit crisis and slowing drilling activity, orders have declined below amounts flowing out of backlog as revenue, causing the backlog to decline to $4.9 billion by June 30, 2010. The decline was halted during the third quarter, when orders of $1.2 billion modestly exceeded revenue out of backlog. Approximately $1.2 billion of contracted backlog is scheduled to flow out as revenue during the fourth quarter of 2010; $3.3 billion in 2011, and the balance of $0.4 billion thereafter. The land rig backlog comprised 19 percent and equipment destined for offshore operations comprised 81 percent of the total backlog as of September 30, 2010. Equipment destined for international markets totaled 85 percent of the backlog. The Company experienced relatively minor levels of order cancellations since 2008 (less than four percent), and does not expect additional material cancellation of contracts or abandonment of major projects; however, there can be no assurance that such discontinuance of projects will not occur.
The Rig Technology segment revenues of $1,650 million in the third quarter of 2010 declined one percent sequentially and declined 17 percent compared to the third quarter of 2009. Segment operating profit was $478 million and operating margins were 29.0 percent during the third quarter. Compared to the second quarter of 2010, revenue declined $22 million and operating profit declined $29 million. Compared to the third quarter of 2009 decremental operating leverage or flow-through (the decrease in operating profit divided by the decrease in revenue) was 28 percent. Despite sequentially lower project revenue, project margins increased slightly as favorable cost experience on completed rig construction projects was applied to remaining estimated costs on ongoing projects, resulting in margins rising above original expectations. Many of these projects were contracted at high prices in 2007 and 2008, and are now being manufactured in much lower cost environments, and benefitting from greater project execution experience within the group. Additionally, downsizing in certain portions of our Rig Technology manufacturing infrastructure in the second half of 2009 contributed to the segments overall margin performance in the third quarter of 2010, which was modestly higher than the third quarter of 2009 despite lower volumes. Sequentially, operating margin declined 130 basis points due to mix and slightly lower volumes. Non-backlog revenue improved 17 percent from the second quarter to the third quarter of 2010, led by higher sales of capital spares. Orders for stimulation equipment, top drives, handling and lifting equipment, complete land rig packages for both domestic and international markets, and an order for two deepwater rig drilling equipment packages for Brazil led to $1,175 million in orders booked into the backlog during the third quarter. Revenue out of backlog of $1,157 million declined 8 percent sequentially. Large shale play fracture stimulation jobs in North America are consuming equipment at a more rapid pace owing to the upturn in oilfield activity and higher equipment intensity in these types of jobs. Additionally, demand is shifting to larger diameter coiled tubing strings to stimulate wells and drill out plugs, which led to demand for the Companys well-intervention equipment in the quarter. Interest in offshore rig construction appears to be ascending, and the Company submitted tenders for up to 28 deepwater rigs for Petrobras to shipyards and drilling contractors during June and July 2010. The Company does not expect to book many orders from this tender until 2011. The orders from this tender will require a high and rising level of local Brazilian content in the construction of new rigs. Customer inquiries for pressure control equipment are also trending higher, and orders for pressure control components, spares, repair and services rose during the third quarter, in response to the Macondo blowout.
Unallocated expenses and eliminations were $70 million and $204 million for the three and nine months ended September 30, 2010, respectively, compared to $54 million and $228, respectively, for the same periods in 2009. The increase for the three months comparison is primarily due to higher intercompany profit elimination related to sales between the segments. The decrease in the nine months comparison is primarily due to $46 million of voluntary retirement costs that were taken in the nine months ended September 30, 2009. This was slightly offset by higher intercompany profit elimination related to sales between the segments and an $11 million write-down of certain accounts receivable in Venezuela during the first nine months of 2010.
At September 30, 2010, the Company had cash and cash equivalents of $3,070 million, and total debt of $870 million. At December 31, 2009, cash and cash equivalents were $2,622 million and total debt was $883 million. A significant portion of the consolidated cash balances are maintained in accounts in various foreign subsidiaries and, if such amounts were transferred among countries or repatriated to the U.S., such amounts may be subject to additional tax obligations. Rather than repatriating this cash, the Company may choose to borrow against its credit facility. The Companys outstanding debt at September 30, 2010 consisted of $200 million of 5.65% Senior Notes due 2012, $200 million of 7.25% Senior Notes due 2011, $150 million of 6.5% Senior Notes due 2011, $150 million of 5.5% Senior Notes due 2012, $151 million of 6.125% Senior Notes due 2015, and other debt of $19 million.
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