National Oilwell Varco (NOV)

Q2 2012 Earnings Call

July 26, 2012 9:00 am ET

Executives

Loren Singletary - Vice President of Investor & Industry Relations

Merrill A. Miller - Chairman, Chief Executive Officer and President

Clay C. Williams - Chief Financial Officer and Executive Vice President

Analysts

John David Anderson - JP Morgan Chase & Co, Research Division

J. Marshall Adkins - Raymond James & Associates, Inc., Research Division

James D. Crandell - Dahlman Rose & Company, LLC, Research Division

Brian Uhlmer - Global Hunter Securities, LLC, Research Division

Robin E. Shoemaker - Citigroup Inc, Research Division

Presentation

Operator

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Welcome to the National Oilwell Varco 2012 Second Quarter Earnings Call. My name is Christine, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Loren Singletary, Vice President of Investor and Industry Relations. You may begin.

Loren Singletary

Thank you, Christine, and welcome, everyone, to the National Oilwell Varco Second Quarter 2012 Earnings Conference Call. With me today is Pete Miller, our Chairman, CEO and President of National Oilwell Varco; and Clay Williams, our Chief Financial Officer.

Before we begin this discussion of National Oilwell Varco's financial results for its second quarter ended June 30, 2012, please note that some of the statements we make during this call may contain forecasts, projections and estimates, including but not limited to comments about our outlook for the company's business. These are forward-looking statements within the meaning of the federal securities laws based on limited information as of today, which is subject to change. They are subject to risk and uncertainties and actual results may differ materially. No one should assume that these forward-looking statements remain valid later in the quarter or later in the year. I refer you to the latest Forms 10-K and 10-Q National Oilwell Varco has on file with the Securities and Exchange Commission for a more detailed discussion of the major risk factors affecting our business. Further information regarding these, as well as supplemental financial and operating information may be found within our press release, on our website at www.nov.com or in our filings with the SEC.

[Operator Instructions].

Now I will turn the call over to Pete are for his opening comments.

Merrill A. Miller

Thank you, Loren. Earlier today, National Oilwell Varco announced second quarter 2012 earnings of $1.42 per share, on a record revenues of $4.7 billion. Excluding onetime transaction cost of $28 million, earnings were $626 million or $1.46 per fully diluted share. Operating profit for the second quarter was a record $907 million or 19.2% of sales. These results compare very favorably to the results of the second quarter 2011, and are continuing proof of the efficacy of our business model, our M&A strategy and our extensive product and service offerings to our customers.

Additionally, today, we announced the quarter-ending backlog of $11.3 billion. Organic new orders for the quarter were $2.2 billion, and new orders through acquisition totaled $500 million, for total new orders of $2.73 billion, or 1.5x book-to-bill ratio. We're very excited about these results and they demonstrate the continued excellent execution and performance of our employees around the world.

I will come back in a few moments for some brief comments regarding our operations, but at this time, I will turn it over to Clay to provide more color on our results. Clay?

Clay C. Williams

Thank you, Pete. National Oilwell Varco produced solid results in its second quarter, delivering $1.46 per fully diluted shares in earnings, up of 28% from a year ago, and up $0.02 or about 1% from last quarter, excluding transaction charges from all periods. Revenues were a record $4.7 billion, up 35% from the year earlier quarter and up 10% from the first quarter of 2012. All 3 segments produced record quarterly revenue during the second quarter.

Operating profit x transaction charges was a record $907 million, up 27% from the second quarter of last year, and up 3% sequentially, and consolidated operating margins for the second quarter were 19.2%, excluding transaction charges. EBITDA was a record $1,084,000,000 for the second quarter.

We have been investing heavily in our businesses, both organically and through M&A, and our second quarter results include a partial quarter for 6 businesses acquired during the period. These, together with the seasonal downturn we see every year in Canada resulted in sequentially lower margins, down 130 basis points from the first quarter. Operating leverage or flow-through were 6% on a sequential revenue gain, and 16% on a year-over-year sales increase as a result.

Within our Distribution & Transmission segment, we were very pleased to acquire the Wilson Distribution business from Schlumberger, and Ensco, a Canadian electrical wire and cable distributor which, together, contribute about $190 million for a few weeks during the quarter. And just last week, we completed our previously announced acquisition of CE Franklin, another leading Canadian distribution business. These 3 businesses will serve to more than double the size of our Distribution & Transmission segment and more importantly, enhance NOV's distribution channels across North America, opening up new channels for NOV products into midstream and downstream markets.

We expect to achieve meaningful efficiencies over the next 18 months through combining ERP systems and securing greater volume purchasing leverage. Integration has preceded quickly and smoothly so far and we are pleased to welcome the CE Franklin, Wilson and Ensco employees into the NOV family.

Within the Rig Technology segment, the second quarter saw us at NKT Flexibles to our subsea production equipment business, which complements our APL turret mooring systems and other FPSO package components. Demand for subsea equipment appears to be building after a slow 2011, and we have signed contracts for about $200 million in turret mooring systems, since June 30, following a light bookings quarter in Q2.

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