National-Oilwell Varco, Inc. (NOV): The Company’s Welcomed Pause

One of my favorite expressions (admittedly homemade) is that almost nothing in life is ever linear. No matter how ineluctable a trend appears to be, it’s likely to be characterized by a two-steps-forward-one-back, or vice versa, tendency.

So it appears to be with National-Oilwell Varco, Inc. (NYSE:NOV), of late the darling of the oilfield services sector. On Friday, however, it was the purveyor of news that its first-quarter 2013 results had fallen well below the consensus expectations of those who watch it most closely.

For the quarter, the company checked in with per-share earnings — excluding one-time baggage — of $1.29 per share. The analysts had pegged the number at about $1.36 or $1.37 a share, depending on whose assessment you’re monitoring. Perhaps even more importantly, the number was $0.15 below the comparable year-ago metric. At $5.31 billion, revenues also slid in under expectations, which had lined up at $5.42 billion.

A mixed quarter
These shortfalls did not occur in a quarter in which the services group has languished and generally disappointed at earnings time. Indeed, the figurative chieftain of the group, Schlumberger Limited. (NYSE:SLB), reported precisely a week earlier that it not only had topped the forecasts of the Wall Street seers, but in fact had also outdone the prior year’s results. Baker Hughes Incorporated (NYSE:BHI) didn’t accomplish the latter feat, but it topped the analysts’ prognostications and even managed to radiate an air of optimism about the North American onshore picture, recently the bane of the group’s existence.

Does this mean National-Oilwell Varco, Inc. (NYSE:NOV) is done for? Washed up? Hardly. We’re still talking about a company that sits amid a vital portion of the energy industry and that will continue to enjoy bright prospects unless mankind summarily discontinues the production and consumption of oil and natural gas. The company’s simply displaying the two-steps-forward-one-back thing.

The individual units
Turning to the company’s three operating units, rig technology recorded more than a 16% revenue increase, year over year. At the same time, its operating profit was up a minuscule 1.1% from the first quarter of 2012. As such, the operating profit for the segment slid to 21.2%, from the year-ago 24.4%.

Revenues for the petroleum services and supplies segment were virtually flat, while its operating profit dipped by just under 25%. That combination caused its operating margin to tumble to 18.8%, from 22.8% as recently as the last year’s initial quarter.

The smallest of the three units, distribution and transmission, turned in a more than doubling of its revenues — 118%, to be precise — thanks to bevy of completed acquisitions, while its contribution to operating income was up slightly by more than 50%. As a result, that metric was about 43% lower year over year.