National Oilwell Varco has reported that for the third quarter ended September 30, 2008 it earned net income of $547.7 million, or $1.31 per fully diluted share, compared to second quarter ended June 30, 2008 net income of $421.7 million, or $1.04 per fully diluted share.
The results include $28.0 million of pre-tax charges ($0.04 per share after tax) related to its merger with Grant Prideco, Inc., and $55.1 million of estimated operating profit impact ($0.09 per share after tax) from disruptions from Hurricane Ike. Excluding both the transaction charges and the estimated impact of the hurricane, earnings would have been approximately $1.44 per fully diluted share.
In addition to reported results, the Company is also providing supplemental results, which include the combined financial results for the Company and Grant Prideco as if the acquisition occurred at the beginning of the period. The Company's revenues and operating profit (before transaction costs) for the third quarter of 2008 were $3,611.6 million and $818.3 million, respectively.
Revenues increased 5 percent from the second quarter of 2008, and increased 18 percent from the third quarter of 2007, on this combined basis. Operating profit flow-through, or the increase in operating profit divided by the increase in revenue, was 24 percent from the second quarter to the third quarter of 2008, and was 32 percent from the third quarter of 2007 to the third quarter of 2008, on a combined basis.
Backlog for capital equipment orders for the Company's Rig Technology segment at September 30, 2008 increased to $11.8 billion, compared to $10.8 billion at June 30, 2008. New orders during the quarter were $2.4 billion. The Company's backlog for capital equipment continued to increase as a result of strong demand for its drilling equipment, particularly for international offshore rigs.
Pete Miller, Chairman, President and CEO of National Oilwell Varco, remarked, "We are very pleased with our strong third quarter earnings. Even given the disruptions caused by Hurricane Ike, we weathered the storm admirably and should deliver products delayed in the last two weeks of the third quarter in the next two quarters.
"We secured a record level of new orders into backlog, with established and well financed customers. While the worldwide financial problems and credit disruptions indicate some near term uncertainty in our industry, our significant capital backlog, our market leading products and services and our exceptionally strong balance sheet position our Company well to withstand near term weakness and prepare for the inevitable improvement in demand to continue rebuilding and expanding the global oil and gas industry equipment and services capabilities.
"We are grateful that our employees made it through Hurricane Ike safely, although many suffered personal losses. We look forward to the resumption of normal activity on the Gulf Coast and continue to keep those affected by this tragedy in our thoughts and prayers."
Third quarter revenues for the Rig Technology segment were $1,926.4 million, up slightly from the second quarter of 2008 and an increase of 27 percent from the third quarter of 2007. Operating profit for this segment was $500.5 million, or 26.0 percent of sales. Operating profit flow-through from the third quarter of 2007 to the third quarter of 2008 was 31 percent. Revenue out of backlog for the segment rose 2 percent sequentially and 18 percent year-over-year, to $1,363.4 million for the third quarter of 2008. The hurricane disrupted operations and delayed shipment of equipment totaling approximately $79.0 million in revenue representing approximately $37.1 million in operating profit.
Petroleum Services & Supplies
Revenues for the third quarter of 2008 for the Petroleum Services & Supplies segment were $1,310.5 million, up 5 percent compared to second quarter 2008 results and up 1 percent from the third quarter of 2007, on an adjusted combined basis for the merger for both periods. Operating profit was $329.6 million, or 25.2 percent of revenue, up 11 percent from the second quarter of 2008, on a combined basis. Modest seasonal improvement in Canada during the quarter following breakup and continued high levels of oilfield production and drilling activity internationally contributed to this segment’s strong performance. Hurricane disruptions reduced results by approximately $34.8 million in revenue and $17.9 million in operating profit.
The Distribution Services segment generated third quarter revenues of $497.6 million, an increase of 17 percent from the second quarter of 2008 and an increase of 38 percent from the third quarter of 2007. Third quarter operating profit was $43.7 million or 8.8 percent of sales. Operating profit flow-through from the third quarter of 2007 to the third quarter of 2008 was 14 percent. This segment benefited from sequential seasonal sales improvements in Canada and growth in international markets. While several stores were affected by the hurricane, others along the Gulf Coast saw sales surge in support of the rebuilding effort, resulting in minimal net financial impact from the storm.
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