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Will National-Oilwell Varco, Inc. (NOV) Earnings Stall Out?

National-Oilwell Varco, Inc. (NYSE:NOV) will release its quarterly report on Tuesday, and the revolution in the U.S. energy industry continues to promise the potential for huge sales growth for the companies that provide essential materials and services to oil and gas exploration and production companies. Yet National-Oilwell Varco, Inc. (NYSE:NOV) earnings might well not keep up with those revenue gains, raising concerns that falling margins could persist and hold back the company’s growth prospects.

National-Oilwell Varco, Inc. (NYSE:NOV)

National-Oilwell Varco, Inc. (NYSE:NOV) remains the go-to leader in oilfield services, with its 60% market share reflecting its dominance in providing everything from drilling pipe to sophisticated instrumentation and pumping systems. Yet changing conditions in the industry have posed some new challenges to the company and its peers in keeping their margins up. Let’s take an early look at what’s been happening with National-Oilwell Varco, Inc. (NYSE:NOV) over the past quarter and what we’re likely to see in its quarterly report.

Stats on National Oilwell Varco

Analyst EPS Estimate $1.33
Change From Year-Ago EPS (8.9%)
Revenue Estimate $5.42 billion
Change From Year-Ago Revenue 14.5%
Earnings Beats in Past 4 Quarters 3

Source: Yahoo! Finance.

Are National Oilwell Varco earnings doomed to fall?
Analysts have pulled back on their views on National-Oilwell Varco, Inc. (NYSE:NOV) earnings in recent months, cutting June-quarter estimates by more than a dime per share and chopping $0.38 per share from their full-year 2013 consensus figures. The stock has still managed to post reasonable gains, though, climbing 8% since late April.

Concerns about National-Oilwell Varco, Inc. (NYSE:NOV) first arose a few months ago, when the company reported first-quarter results that showed a similar disconnect between revenue and earnings. In its rig technology segment, revenue climbed 16%, but operating profits were up just 1%. Meanwhile, petroleum services and supplies suffered a 25% drop in operating profit on flat revenue, and the combination of those factors smacked down operating margins substantially. Despite substantial gains in order backlogs, Varco president Clay Williams remained cautious about the North American market.

Another issue that Varco has to face is the specter of increasing competition. Cameron International Corporation (NYSE:CAM) has arisen as a big player in the drilling and production systems space, with a particular emphasis on subsea applications like blowout preventers. With Cameron International Corporation (NYSE:CAM) sporting a recent partnership with Schlumberger Limited. (NYSE:SLB), the combination will have both the expertise and the financial resources to challenge Varco in that niche. More broadly, up-and-coming Forum Energy Technologies Inc (NYSE:FET) has sought to emulate Varco’s broad-based services menu, offering remotely operated vehicles for deepwater inspection and construction as well as pipe and cementing materials and a range of subsea systems and equipment. Forum Energy Technologies Inc (NYSE:FET) has posted solid results in its brief history, taking steps to continue its fast growth trajectory.

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