National Oilwell Varco Sees Good Results for 1Q05
National Oilwell Varco, Inc. (NYSE: NOV) reported that for its first quarter ended March 31, 2005 it earned $35.6 million, or $0.33 per fully diluted share, which includes $10.9 million of pre-tax charges related to its merger with Varco International, Inc. Net income for the period excluding these charges was $44.3 million, or $0.42 per fully diluted share. Reported revenues for the quarter were $814.9 million, and operating profit excluding the $10.9 million merger and restructuring charges was $76.8 million.
The Company completed its merger with Varco International, Inc. on March 11, 2005, and, as a result, its financial statements reflect Varco's results for only the last 20 days of the quarter.
Backlog for capital equipment orders for the Company's new Rig Technology segment at March 31, 2005 rose 9 percent through the quarter to $852 million, compared to a combined backlog for National Oilwell and Varco at December 31, 2004 of $783 million. Varco's backlog levels as of December 31, 2004 have been recalculated to conform with the Company's backlog measurement practices, which exclude orders below certain dollar-value thresholds. Varco previously reported backlog amounts of all open orders for its drilling, coiled tubing, and wireline equipment businesses.
Pro forma revenues out of backlog for the full 90 days of the quarter for both Varco and National Oilwell totaled $305 million, compared to orders which totaled $374 million, reflective of the growing demand for the Company's drilling and well-servicing products.
In addition to reported results, the Company is also providing supplemental results, which include full quarter Varco results on a pro forma basis, for the first quarters of 2005 and 2004 and for the quarter ended December 31, 2004. National Oilwell Varco pro forma revenues and operating profit for the quarter were $1.1 billion and $110.5 million.
The Company also announced its new reporting segments, which are described below.
The Rig Technology segment includes most of the capital equipment manufactured and sold by the Company including drilling rigs, jackup packages, coiled tubing units, cranes, mooring systems, wireline units, nitrogen injection units and workover rigs. Revenues for this segment on a pro forma basis for the first quarter were $543.3 million, up 3% sequentially. Operating income declined $4.4 million during this period to $61.3 million, primarily due to higher costs related to a large project that shipped in the quarter and another project near completion. Compared to the pro forma first quarter of 2004, revenues rose 58% and operating leverage (incremental operating profit divided by incremental revenue) was 22%.
Petroleum Services & Supplies
The Petroleum Services & Supplies segment consists of those businesses within the Company providing critical services and consumables to the oil and gas industry and includes pump and liner expendable supplies; pipeline and tubular inspection and coating; fiberglass and coiled tubing pipe sales; solids control and rig instrumentation; and downhole tools rentals and sales. Pro forma first quarter operating profit of $63.6 million for this segment fell sequentially $2.8 million due to a sharp seasonal decline in pipeline inspection services, and lower volumes and margins for the Company's fiberglass pipe sales. These declines were partly offset by improved results out of most of the other businesses in this segment, consistent with higher oilfield activity levels, at good incremental profitability. Pro forma first quarter revenues for this segment were $402 million, in line with the fourth quarter. Year-over-year pro forma first quarter revenue increased 26%, at 21% operating leverage.
The Distribution Services segment provides maintenance, repair and operating supplies to drilling and production operations around the world, employing advanced information technologies to provide complete procurement, inventory management and logistics services to our customers. First quarter revenues and operating profit of $235.9 million and $7.6 million for this group were flat sequentially, as increased revenues in the United States and Canada were offset by a decline in international sales. Year-over-year pro forma first quarter revenue rose 8%, at 12% operating leverage.
Pete Miller, President and CEO of National Oilwell Varco, stated "The merger positioned our Company exceptionally well to benefit from the tremendous demand we see developing in the oilfield. Our level of new orders in the quarter is a clear indication of the trust our customers have in our ability to deliver the products and technology needed to keep the petroleum industry functioning around the world.
"I am very excited about the vigorous start to our integration
efforts which should result in improved margins over the next few
quarters. The combination of merger-related synergies, the rising flow
of revenues out of our growing backlog, and the turnaround of
first-half seasonal factors, are expected to lead to improved results
in the back half of the year."
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