National Oilwell Varco Announces Third Quarter 2005 Earnings and Backlog
National Oilwell Varco, reported that for its third quarter ended September 30, 2005 it earned net income of $88.5 million, or $0.50 per fully diluted share, compared to second quarter ended June 30, 2005 net income of $61.2 million, or $0.35 per fully diluted share. The results include $7.6 million of pre-tax charges ($0.03 per share after tax) related to its merger with Varco International, Inc. Excluding transaction charges, earnings were $0.53 per fully diluted share. Revenues for the quarter were $1,236.5 million, and operating profit excluding the $7.6 million merger and restructuring charges was $152.6 million.
During the third quarter, Hurricanes Katrina and Rita disrupted the Company's operations in the Gulf of Mexico area. Although no facilities suffered significant damage, there was some minor damage and personnel had to be evacuated in advance of the hurricanes. The impact on the Company's operating profit for the quarter is estimated at $9.5 million ($0.04 per share). Excluding both the transaction charges and the estimated impact of the hurricanes, earnings would have been $0.57 per fully diluted share.
Backlog for capital equipment orders for the Company's Rig Technology segment at September 30, 2005 rose 47% over the prior quarter to $1.75 billion, with new orders during the quarter increasing over the prior period to $921.3 million. Strong demand for the Company's drilling equipment products continued to drive the increase in backlog.
Third quarter transaction charges relate to the March 11, 2005 combination of National Oilwell and Varco. The Company still expects to achieve operating profit improvements in the range of $60 million, on an annualized run rate basis, when the integration is completed by the end of the first quarter of 2006.
Pete Miller, Chairman, President and CEO of National Oilwell Varco, stated "National Oilwell Varco performed well in the third quarter, as orders for new drilling equipment continued to strengthen to new record highs, and demand for our oilfield consumables and services surged worldwide.
We are grateful that none of our employees were lost or injured by hurricanes Katrina and Rita, 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. Our organization expects to play a key role in facilitating the industry's rebuilding through the area.
The integration of National Oilwell and Varco is proceeding smoothly and much was accomplished during the quarter. Our expectations for substantial operating benefits from the combination remain high."
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. Third quarter revenues for this segment were $572.8 million, and operating profit was $70.4 million, or 12.3% of sales. The hurricane disrupted operations and delayed shipment of equipment totaling approximately $9.2 million in revenue representing approximately $4.4 million in operating profit.
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. Revenues of $472.0 million were up 5% sequentially compared to second quarter results, and operating profit rose 13.6% to $87.0 million over the same period, representing a 51% operating leverage (incremental operating profit divided by incremental revenue). These positive results were due to continuing high demand for most of the group's oilfield services and supplies and improved pricing. Hurricane disruptions reduced results by approximately $11.0 million in revenue and $5.1 million in operating profit.
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. Third quarter revenues of $272.4 million were up 6% from
the second quarter. Operating profit margins for this group showed
significant improvement as operating profit of $14.5 million, or 5.3%
of sales for the group, was $4.9 million higher than the second
quarter due to lower costs and higher rebates from suppliers. While
several stores were affected by the hurricanes, others along the gulf
coast saw sales surge in support of the rebuilding effort, resulting
in minimal net financial impact from the storms.
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