Morningstar | National Oilwell Varco Reports Strong 4Q Results but Issues Cautious Guidance for First Half of 2019
National Oilwell Varco reported strong fourth-quarter results, with revenue up 11% sequentially and adjusted operating margins improving to 4.5% from 3.4%. However, management issued cautious guidance for the first half of 2019 owing to the non-repeat of strong fourth quarter work as well as the fall in oil prices since October. In particular, management is guiding for about a 10% sequential fall in revenue in the first quarter. We may slightly moderate our 2019 growth forecasts owing to this tempered guidance, but we won't be changing our longer-term views. For now, our fair value estimate and no-moat rating are unchanged.At the segment level, Rig Technologies contributed most to the top-line results with a 26% sequential revenue improvement. Geographically, international markets outperformed with a 20% revenue increase, whereas North American increased just 1%. This marks a sharp break from the pattern since the beginning of 2017 whereby most of the top-line improvement has been driven by North America, owing to strengthening U.S. shale activity. By contrast, we expect international activity to outperform in 2019, which helps explain the company's strong international results in the fourth quarter as its customers gear up for these higher activity levels.
The adjusted operating income improvement was broad based, but the Wellbore Technologies segment delivered particularly strong incrementals (68%) in the quarter, allowing segment adjusted operating margins to reach 7.4%, the highest level since the first quarter of 2015. Wellbore has benefited particularly from several consecutive quarters of improvement in the drill pipe business. Encouragingly, management has noted that sales of its premium Delta product line now represent 25% of drill pipe sales.
National Oilwell Varco is an independent provider of equipment and technology to the upstream oil and gas industry. The company's segments include: Wellbore Technologies, which designs, manufactures, rents, and sells a variety of equipment and technologies used to perform drilling operations; Completion and Production Solutions, which designs, manufactures, and sells equipment and technologies for hydraulic fracture stimulation, well intervention, onshore production, and offshore production; and Rig Technologies, which designs, manufactures and sells land rigs, offshore drilling equipment packages, and drilling rig components that mechanize and automate the drilling process and rig functionality.
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