National Oilwell Varco Q2 2010 Earnings Call Transcript

National Oilwell Varco Q2 2010 Earnings Call Transcript
Publish date:

National Oilwell Varco (NOV)

Q2 2010 Earnings Call

July 29, 2010 9:00 am ET


Clay Williams - Chief Financial Officer and Executive Vice President

Merrill Miller - Chairman, Chief Executive Officer and President

Loren Singletary - President


William Sanchez - Howard Weil Incorporated

Geoff Kieburtz - Weeden & Co. Research

James Crandell - Barclays Capital

J. Adkins - Raymond James & Associates

Brian Uhlmer - Pritchard Capital Partners, LLC



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Welcome to the National Oilwell Varco Second Quarter 2010 Earnings Conference Call. My name is Kristine, and I will be your operator for today's conference. [Operator Instructions] I will now turn the call over to Loren Singletary, Vice President, Global Accounts and Investor Relations. Mr. Singletary, you may begin.

Loren Singletary

Thank you, Kristine, and welcome everyone to the National Oilwell Varco Second Quarter 2010 Earnings Conference Call. With me today is Pete Miller, Chairman, CEO and President of National Oilwell Varco; and Clay Williams, Chief Financial Officer.

Before we begin this discussion of National Oilwell Varco's financial results for its second quarter ended June 30, 2010, 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 risks 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 form 10-K 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, or in our filings with the SEC. Later on this call, we will answer your questions, which we ask you to limit to two in order to permit more participation.

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

Merrill Miller

Thank you, Loren, and good morning. Earlier today, National Oilwell Varco announced second quarter 2010 earnings of $401 million or $0.96 per fully diluted share on revenues of $2.94 billion. These results compare to second quarter 2009 earnings of $220 million or $0.53 per share on revenues of $3 billion. Clay will expand on these results in just a moment. Additionally, we announced new capital equipment orders of $689 million and a quarter ending backlog of $4.9 billion.

Throughout the call, we'll provide a little bit more color on the backlog and some of the things that are happening around the world. We are very pleased with these results and it shows the continued outstanding performance of our employees around the world. I will talk a little bit later about some of the operational issues and some of the things that we're seeing around the world. But at this time, I'll turn it over to Clay for his comments.

Clay Williams

Thank you, Pete. National Oilwell Varco posted second quarter 2010 net income attributable to the company of $401 million or $0.96 per diluted share, compared to $1.01 per share for the first quarter of 2010 and $0.53 per share in the second quarter of 2009, all on a GAAP basis.

Included in the second quarter 2010 results were $4 million pretax or $0.01 per share after tax and transaction charges. Excluding these earnings were $0.97 per share. This compares to $1.10 per share in the first quarter of 2010 and $0.90 per share in the second quarter of 2009, excluding unusual transaction, restructuring impairment and discrete tax items from these periods too.

As I do each quarter, I will focus my comparative remarks on results excluding these unusual items, which are reconciled in our press release to highlight changes in our underlying businesses.

Overall, results were solid. Domestic rig activity was robust. Canada breakup was not too bad, and outlook for Canada is rising for the second half of the year. And a steady recovery has taken root in international markets, albeit a bit more subdued than the vigorous recovery we've seen on this continent.

Second quarter gross orders of $689 million of capital equipment for our Rig Technology group marked the third quarter in a row, gross orders have exceeded $600 million mark. Revenues out of NOV's backlog of capital equipment were a little less than $1.3 billion comparable to shipment levels generated during the beginning of 2008.

Second quarter operating profit of $494 million produced operating margins of 20.2%. Compared to the first quarter, flow-throughs were 59% on a 3% sequential revenue decline due to the underlying mix changes. Compared to the second quarter of 2009, the company generated $5 million higher operating profit, despite a $69 million year-over-year revenue decline, lifting operating margin 60 basis points year-over-year.

This is due in large part to better year-over-year margins on work coming out of backlog due to continued excellent performance by the Rig Technology team.

Rig activity in the United States grew 12% from the first quarter and 61% from the second quarter of last year, as the shale play Juggernaut continued to regain traction following the sharp downturns of last year. Our customers are expanding the application of shale play technology, horizontal drilling and hydraulic fracture treatment to unconventional liquids plays in addition to unconventional gas. Horizontal drilling in the United States now handily exceeds its prior 2008 peak and has grown eight folds since 2004. Virtually all business lines within Petroleum Services & Supplies and Distribution segments benefited from the domestic rig count increase, both sequentially and year-over-year, with particularly ardent demand from products utilized in horizontal shale well drilling and completion operations, coiled tubing, multiplex pumps and flowline products, downhole drilling motors and tools and premium drill pipe.

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