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Why Did National Oilwell Varco’s 1Q16 Earnings Beat Estimates?

Alex Chamberlin

What Do National Oilwell Varco's Fiscal 1Q16 Earnings Tell Investors?

National Oilwell Varco’s fiscal 1Q16 revenue

National Oilwell Varco (NOV) released its fiscal 1Q16 earnings on April 28. The company recorded total revenues of ~$2.19 billion in fiscal 1Q16—down 54.6% from ~$4.82 billion recorded in fiscal 1Q15. National Oilwell Varco’s revenues for the latest quarter decreased mostly due to the slowdown in North American drilling operations and lower spare parts sales.

Compared to fiscal 4Q15, National Oilwell Varco’s revenues decreased 19.6%. In comparison, the fiscal 1Q16 revenue for Baker Hughes (BHI), National Oilwell Varco’s larger market cap peer, decreased 42% YoY (year-over-year).

National Oilwell Varco’s 1Q16 earnings

National Oilwell Varco’s adjusted net EPS (earnings per share) for fiscal 1Q16 is -$0.06. This beat consensus sell-side analysts’ EPS estimate of -$0.12. Various cost reduction measures, primarily in the Rig Systems and Rig Aftermarket segments, reduced its total costs. This helped National Oilwell Varco’s adjusted earnings beat analysts’ estimates. Compared to fiscal 1Q15, National Oilwell Varco’s adjusted earnings switched to an adjusted loss in fiscal 1Q16.

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On average, the adjusted EPS exceeded the consensus EPS by ~3% in the past 13 quarters. National Oilwell Varco is 4.4% of the Market Vectors Oil Services ETF (OIH). OIH tracks an index of 25 OFS companies.

What impacted the reported earnings in fiscal 1Q16?

In fiscal 1Q16, National Oilwell Varco’s reported net loss was ~$119 million. This is a steep deterioration compared to fiscal 1Q15 when National Oilwell Varco reported $310 million in net income. Compared to fiscal 4Q15 when National Oilwell Varco’s net loss was ~$1.5 billion, the reported earnings improved in fiscal 1Q16. YoY, National Oilwell Varco’s fiscal 1Q16 income fell mainly due to lower drilling activities by upstream companies and lower rigs’ spare parts sales.

Next, we’ll discuss National Oilwell Varco’s growth drivers.

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