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Analyzing National Oilwell Varco’s Segment Performances in 4Q17

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National Oilwell Varco’s segment-wise performance

From 4Q16 to 4Q17, National Oilwell Varco’s (NOV) Wellbore Technologies segment’s revenue rose 34.5%, the highest rise among the company’s operating segments. NOV’s Completion & Production Solutions segment witnessed a 14.6% revenue rise during the same period.

National Oilwell Varco makes up 0.86% of the Vanguard Energy ETF (VDE). VDE has fallen 6% in the past year compared to the 10% fall in NOV’s stock price during the same period.

EBITDA (earnings before interest, tax, depreciation, amortization) is a measure of operating income. By adjusted EBITDA, the Wellbore Technologies segment witnessed a 4.3x rise in 4Q17 compared to 4Q16.

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The Completion & Production Solutions segment’s adjusted EBITDA saw a more moderate rise of 7.3% in 4Q17 compared to a year earlier. The Rig Technologies segment remained nearly unchanged in terms of revenue and adjusted EBITDA in 4Q17 compared to 4Q16. In January 2018, NOV combined its Rig Systems and Rig Aftermarket reporting segments into a single segment called Rig Technologies.

NOV’s growth drivers: Positives

  • strong execution and repositioning by investing in technologies that benefit NOV’s clients
  • shift in market mix in favor of the onshore market and concentration in North America
  • improvements in drilling automation, multistage completions, predictive analytics, and condition-based maintenance
  • higher volumes and improved pricing in the Wellbore Technologies segment
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NOV’s growth drivers: Negatives

  • lower revenues from offshore products
  • higher costs and lower throughput in offshore products and processing equipment

What affected NOV’s reported earnings in 4Q17?

In 4Q17, NOV’s reported net income was ~-$14 million. NOV cut its losses remarkably compared to 4Q16, when it reported net income of -$714 million. NOV’s operating income, expressed as adjusted EBITDA, improved 90% in 4Q17 over 4Q16, led by improvements in the Wellbore Technologies and Completion & Production Solutions segments. Compared to 3Q17, National Oilwell Varco’s net income also improved.

Net income for NOV versus peers

Schlumberger (SLB) recorded net income of -$2.3 billion in 4Q17. Baker Hughes, a GE company (BHGE), recorded net income of ~-$29 million in 4Q17. Read about BHGE’s 4Q17 earnings in Market Realist’s Why Did Baker Hughes’s 4Q17 Earnings Beat Estimates?

NOV makes up 0.06% of the SPDR S&P 500 ETF (SPY). The energy sector makes up 6.1% of SPY. SPY tracks the S&P 500 Index (SPX-INDEX), which has risen 15.5% in the past year.

Next, we’ll discuss National Oilwell Varco’s returns.

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