Backlog of capital equipment orders increased to $412 million at March 31, 2004, compared to $339 million at December 31, 2003. Revenues from backlog for the first quarter were $128 million, with order additions for the period of $201 million.
Products and Technology Group
Revenues of $305 million in the first quarter were down $44 million sequentially, primarily due to a decrease in capital equipment revenues realized in the current period. Operating income fell by $21 million due to the reduction in revenues and lower margins on the capital equipment portion.
Distribution Services Group
Revenues of $218 million were up $7 million sequentially, primarily due to strength in the U.S. market. Operating income rebounded strongly from the fourth quarter of 2003.
"Our backlog of capital equipment orders jumped sharply during the quarter to over $400 million, which we believe is the first tangible indication of the start in the long awaited capital equipment replacement cycle," stated Pete Miller, Chairman, President and CEO of National Oilwell. "After more than 20 years of fleet attrition in both land and offshore markets throughout the world, the need for new, technologically advanced equipment is building. Global demand for oil and gas continues to grow, and new supplies will only be available by increased drilling in areas of ever increasing difficulty. While current demand for capital equipment continues to come mainly from international land and offshore customers, we believe the need for updated equipment also exists in North America.
"We are now marketing a new, highly mobile land rig designed to compete effectively in the North American market. Known as the Ideal Rig(TM), capabilities include drilling to depths of up to 18,000 feet and significantly better utilization potential for drilling contractors due to its fast rig up and mobilization characteristics. Backed by quality guarantees associated with all National Oilwell products, we believe this rig, priced at $6.9 million after volume rebates, can justify the replacement of older, less efficient equipment built in the late 1970s and early 1980s.
"Our first quarter results suffered in part due to the positive outlook that we see. We cannot justify significantly reducing fixed costs when we clearly see a need that is only months away. Specifically, our capital equipment revenues in the quarter fell to $128 million. This decline is purely an issue of timing, and is certainly not an indicator of a slowdown in future business in 2004 and beyond. Our margins in the first quarter were hurt by the lower revenues and by higher costs of the components used to manufacture our products. We have addressed the latter through broad price increases beginning April 1, and by instituting a steel price surcharge on many of our outstanding quotations. These actions should fully restore our margins for the second half of this year.
"The actions we took in Distribution after the fourth quarter of 2003 have had positive effects, restoring margins to respectable levels. We continue to believe we can achieve even better operating margins and return on capital within this group."
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