CAM Cameron International Corp.

Oilfield services company National Oilwell Varco (NOV) reported better-than-expected third quarter results, helped by robust activity levels, as well as good project execution skills and manufacturing efficiency. All the company’s segments managed to improve their revenues and operating profit over the year-ago period.

Earnings per share (excluding transaction charges) came in at $1.26, comfortably above the Zacks Consensus Estimate of $1.17 and the year-ago adjusted profit of 97 cents. Quarterly revenue rose 24.2% year-over-year – from $3,011.0 million to $3,740.0 million – and was 2.4% above our projection.

Segmental Performance

Rig Technology: Revenue in the Rig Technology segment increased 19.4% year over year to $1,970.0 million, while revenue out of backlog was up 22% from the corresponding period last year.

The segment’s operating profit was up 10.0% year over year to $528 million. Rig Technology’s profitability during the quarter was helped by higher demand for aftermarket parts, services and capital spares. Operating margin, at 26.8%, however, dipped from 29.1% in the year-ago period.

Petroleum Services & Supplies: The company’s Petroleum Services & Supplies segment achieved revenues of $1,460.0 million, up 34.1% from the year-ago period, while operating profit rose 82.3% from the third quarter of 2010 to $299 million.

Operating margin was 20.5% versus 15.1% 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, seasonal recovery in Canada and improved pricing.

Distribution Services: Distribution Service revenues were up 13.2% year over year to $480 million. Operating profit was $37 million, compared to $24 million in the year-earlier quarter. Operating margin was 7.7%, up from 5.7% in the third quarter of 2010. The segment results were helped by seasonal sales improvements in Canada and strong gains in U.S. operations on the back of higher rig counts.

Backlog

During the quarter, National Oilwell Varco added a record $3,940.0 million worth of orders to its capital equipment backlog, which included the largest single order ever in National Oilwell’s history – a $1.5 billion contract to supply equipment for seven drillships to premier Brazilian shipyard firm Estaleiro Atlantico Sul.

Backlog for capital equipment orders for the company’s Rig Technology segment was $10,270.0 million at September 30, 2011, up 33% from the previous quarter level.

Balance Sheet

At the end of the third quarter, the company had cash on hand of $3,870.0 million and long-term debt of $510 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 #3 Rank that translates into a short-term Hold rating. Longer-term, we are maintaining our Neutral recommendation on the stock.

 
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