National Oilwell Varco's CEO Discusses Q4 2011 Results - Earnings Call Transcript

National Oilwell Varco (NOV)

Q4 2011 Earnings Call

February 02, 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

Douglas L. Becker - BofA Merrill Lynch, Research Division

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

James C. West - Barclays Capital, Research Division

Brian Uhlmer - Global Hunter Securities, LLC, Research Division

Michael K. LaMotte - Guggenheim Securities, LLC, Research Division

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

Robin E. Shoemaker - Citigroup Inc, Research Division

Presentation

Operator

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Welcome to the National Oilwell Varco 2011 Fourth Quarter's Earnings Call. My name is Dawn, 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. Mr. Singletary, you may begin.

Loren Singletary

Thank you, Dawn, and welcome, everyone, to the National Oilwell Varco Fourth Quarter and Full Year 2011 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 fourth quarter and fiscal year ended December 30, 2011, 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, 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 more detailed discussions 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 for his opening comments.

Merrill A. Miller

Thanks, Loren, and good morning, everybody. Earlier today, we announced fourth quarter 2011 net income of $574 million or $1.35 per fully diluted share on revenues of $4.26 billion. These earnings are 8% better than the third quarter of 2011 and 29% better than the fourth quarter of 2010. Earnings for the entire year of 2011 totaled $2 billion or $4.70 per fully diluted share on revenues of $14.66 billion. These results are 20% better than 2010.

Additionally, we announced new capital equipment orders in the quarter of $1.7 billion, bringing the total new orders in the year to $10.8 billion, which eclipses our old record of $7.3 billion set in 2008. We are very excited about these results and optimistic about the ordering atmosphere for 2012. I want to thank all of the employees around the world at National Oilwell Varco for their tremendous work in achieving these stellar results for our shareholder. I will expand further on our operations in a moment, but we'll now turn it over to Clay to provide some color on our results.

Clay C. Williams

Thank you, Pete. National Oilwell Varco posted excellent results in the fourth quarter, earning $574 million or $1.35 per fully diluted share on $4.3 billion in revenue. Operating profit was $848 million for the fourth quarter, up $76 million from the third quarter and up $224 million from the fourth quarter of last year on a GAAP basis.

Excluding transaction charges from all periods, fourth quarter operating profit was $860 million, up 11% from the third quarter and up 38% from the fourth quarter last year. Operating margins on this basis were 20.2% in the fourth quarter of 2011 compared to 20.8% in the third quarter and 19.7% in the fourth quarter of last year.

Sequential operating leverage or flow-through was 16% on the 14% increase in sales. This is a little lower than we typically see for 2 reasons: First, we had nearly a full quarter's contribution from our Ameron acquisition, which closed October 5, and was responsible for about 25% of our consolidated sequential revenue growth. These businesses came in at a little lower margin as expected, but our integration initiatives to improve efficiency are fully mobilized and we are pleased with the progress so far. Four months into the Ameron combination, we're very excited about what we see and in particular about the composite pipe powerhouse we are building.

Second, most of the rest of the sequential sales growth, 67%, came from our Rig Technology segment, at slightly lower sequential margins, consistent with the gradual mix shift we've described in the past. Outstanding execution, once again, by this team. They have boosted revenue out of backlog, a remarkable 26% sequentially, up $368 million over the third quarter.

Overall, the fourth quarter marked a strong finish to a strong year for NOV. 2011 saw National Oilwell Varco generate record net income of $1,994,000,000 on record revenues of $14.7 billion. Compared to the full year results for 2010 and excluding transaction charges from both years, revenues improved 21% at 21% operating leverage year-over-year. Cash flow from operations was a very solid $2.1 billion and the company reinvested $1.5 billion in our business, 1/3 in organic growth opportunities and 2/3 in acquisition growth opportunities. Another $0.5 billion went to scheduled debt repayments and dividends to our shareholders.

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