National Oilwell Varco Says Net Income Up 19%
National Oilwell Varco, Inc. (NYSE: NOV) reported that it earned net income of $176.6 million, or $1.00 per fully diluted share for its third quarter ended September 30, 2006, an increase of 19 percent compared to second quarter ended June 30, 2006 net income of $147.9 million, or $0.84 per fully diluted share. Earnings per share increased 100 percent compared to the third quarter of 2005, when the Company earned $88.5 million or $0.50 per fully diluted share.
Revenues for the third quarter of 2006 were $1,777.9 million, an increase of 7 percent from the second quarter of 2006 and an increase of 44 percent from the third quarter of 2005. Operating profit for the quarter was $285.5 million or 16.1 percent of sales. Operating profit flow-through, or the increase in operating profit divided by the increase in revenue, was 32 percent from the second quarter of 2006 to the third quarter of 2006, and was 26 percent from the third quarter of 2005 to the third quarter of 2006. The third quarter of 2006 contained $7.9 million in stock-based compensation expense, and the third quarter of 2005 included $7.6 million in stock-based compensation and integration charges related to the Varco merger.
Backlog for capital equipment orders for the Company's Rig Technology segment at September 30, 2006 rose 30 percent over the prior quarter to $5.4 billion, compared to $4.1 billion at June 30, 2006. New capital equipment orders during the third quarter of $1.8 billion increased 23 percent as compared to the second quarter. The Company's backlog for capital equipment continued to increase as a result of strong demand for its drilling equipment, particularly for offshore rigs.
Pete Miller, Chairman, President and CEO of National Oilwell Varco, remarked, "We executed well this quarter. Orders for our capital drilling equipment have reached record highs, and our quoting activity for land and offshore projects remained strong. Margins in Rig Technology continued to expand from a combination of operating efficiency and improved pricing. Our Distribution Services group posted record margins, and our other rig-driven businesses also performed very well, with expanding margins across most product lines in Petroleum Services & Supplies. We believe that business will continue to remain strong through the end of the year and we are optimistic about our opportunities for the coming year."
Third quarter revenues for the Rig Technology segment were $887.3 million, an increase of 5 percent over the second quarter of 2006 and an increase of 55 percent from the third quarter of 2005. Operating profit for this segment increased to $157.2 million or 17.7 percent of sales during the third quarter. Operating profit flow-through from the second quarter of 2006 to the third quarter of 2006 was 51 percent due primarily to better pricing. Operating profit flow-through from the third quarter of 2005 to the third quarter of 2006 was 28 percent, excluding integration charges from the prior period last year. Revenue out of backlog for the segment was $593 million, an increase of 12 percent over the second quarter.
Petroleum Services & Supplies
Revenues for the third quarter of 2006 for the Petroleum Services & Supplies segment were $624.1 million, up 6 percent compared to second quarter results and up 32 percent from the third quarter of 2005. Operating profit was $142.4 million, or 22.8 percent of revenue, representing an increase of $12.7 million from the second quarter. Operating profit flow-through from the second quarter of 2006 to the third quarter of 2006 was 37 percent. Third quarter seasonal improvement in Canada following breakup and continued high levels of oilfield production and drilling activity elsewhere contributed to the strong sequential performance.
The Distribution Services segment generated third quarter revenues of $353.5 million, an increase of 11 percent from the second quarter of 2006 and an increase of 30 percent from the third quarter of 2005. Third quarter operating profit was $25.5 million or 7.2 percent of sales, a record level for the group. This segment benefited from sequential seasonal improvements in Canada and stronger sales in the United States and international markets.
National Oilwell Varco is a worldwide leader in the design, manufacture and sale of equipment and components used in oil and gas drilling and production operations, the provision of oilfield services, and supply chain integration services to the upstream oil and gas industry.
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