National Oilwell Varco Inc. fourth-quarter 2017 earnings surpassed estimates, and although reporting an adjusted loss of 4 cents per share, the figure compared favorably to the 15-cent loss in the prior-year quarter.
Revenue climbed 7% sequentially and 16% from the same quarter in 2016 to $1.97 billion, as Wellbore Technologies, Completion and Production Solutions and Rig Technologies each outperformed comparative to the previous quarter and the corresponding period in 2016.
"Demand was strong for short cycle consumable product offerings in the fourth quarter and customers that deferred taking delivery of capital equipment in the third quarter, due to oil prices that dipped into the low $40/bbl range, came back to take deliveries," CFO Jose Bayardo said during a Feb. 6 earnings call.
Backlogs for capital equipment orders for Completion and Production Solutions and for capital equipment orders for Rig Systems at Dec. 31, 2017, were $1.07 billion and $1.89 billion, respectively.
"While still cautious, those customers reinitiated inquiries and placed orders for additional capital equipment, providing us with our highest level of bookings since the third quarter of 2015," Bayardo said.
Repositioned with a focus on technologies, the company is looking for strong growth in 2018.
The backdrop for 2018 is one of newfound fidelity to capital discipline and lack of bank financing that is expected to result in higher oil prices down the road, an oversupply situation that is rapidly improving, Midland rig counts that are rising while offshore rig counts are falling, and the application of horizontal drilling and hydraulic fracture stimulation that profitably unlock oil and gas from very poor quality reservoir rock shales and enhance profitability for conventional reservoirs, President and CEO Clay Williams said during the earnings call.
Against this backdrop, the company will "pivot its portfolio of businesses to gain more exposure to unconventional shale technologies, while enhancing its considerable offshore offering," Williams said.
The recent U.S. tax reform legislation will help National Oilwell Varco meet another of its 2018 goals to preserve credit metrics that support an investment grade credit rating, important for the company's access to low cost capital to pursue attractive opportunities and to ensure customer trust with purchase commitments built over multiple years.
In addition to enhancing its ability to move cash around the world, a reduction in the U.S. tax rate, from 35% to 21%, will lower the overall long-term effective tax rate from approximately 30% to the low to mid-20% range.
"As our cash repatriation flexibility improves with new tax law changes and our free cash flow grows with our business and our heightened efforts around working capital, we will be focused intently on optimizing capital allocation throughout 2018," Bayardo said.
Working capital levels have remained frustratingly high through the downturn as a lack of cash and liquidity among customers made it challenging to turn inventory and accounts receivable into cash, Bayardo said. Consequently, National Oilwell Varco is heightening operational focus in this area in 2018 by further tying incentive compensation to improve capital efficiency and working capital performance.
The company's shares were up 4.01% to $35.29 per share during late afternoon trade on the NYSE.
