CAM Cameron International Corp.

Oilfield services company National Oilwell Varco (NOV) reported better-than-expected second quarter results, helped by robust drilling and pressure pumping activity throughout North America, as well as good project execution skills and manufacturing efficiency.

Earnings per share (excluding transaction charges) came in at $1.14, comfortably above the Zacks Consensus Estimate of $1.01 and the year-ago adjusted profit of 97 cents. Quarterly revenue rose 19.5% year-over-year – from $2,941.0 million to $3,513.0 million – and was 8.7% above our projection.

Segmental Performance

Rig Technology: Revenue in the Rig Technology segment increased 13.3% year over year to $1,894.0 million, while revenue out of backlog was up 11% from the corresponding period last year.

The segment’s operating profit was up 1.6% year over year to $517 million. Rig Technology’s profitability during the quarter was helped by higher demand for aftermarket parts, services and capital spares. Operating margin, at 27.3%, however, dipped from 30.4% in the year-ago period.

Petroleum Services & Supplies: The company’s Petroleum Services & Supplies segment achieved revenues of $1,359.0 million, up 31.6% from the year-ago period, while operating profit rose 80.4% from the second quarter of 2010 to $249 million.

Operating margin was 18.3% versus 13.4% in the year-ago quarter. The positive comparisons were due to higher demand for products and services provided by the segment, buoyed by improved rig activity in U.S. shale plays, and modest growth in international markets. These factors were somewhat negated by seasonal declines in Canada.

Distribution Services: Distribution Service revenues were up 15.9% year over year to $423 million. Operating profit was $26 million, compared to $13 million in the year-earlier quarter. Operating margin was 6.1%, up from 3.6% in the second quarter of 2010. The segment results were helped by strong gains in U.S. operations on the back of higher rig counts.

Backlog

During the quarter, National Oilwell Varco added $2,960.0 million worth of orders to its capital equipment backlog, which included higher demand for drilling equipment for newbuild offshore rigs, as well as for well intervention and stimulation equipment. Backlog for capital equipment orders for the company’s Rig Technology segment was $7,740.0 million at June 30, 2011, up 26% from the previous quarter level.

Balance Sheet

At the end of the second quarter, the company had cash on hand of $3,440.0 million and long-term debt of $511 million. The debt-to-capitalization ratio stood at approximately 2.9%.

Our Recommendation

National Oilwell Varco, which ranks ahead of Cameron International Corp. (CAM) as the biggest U.S. maker of oilfield equipment, currently retains a Zacks #2 Rank that translates into a short-term Buy rating. Longer-term, we are maintaining our Neutral recommendation on the stock.

 
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