Large-cap energy equipment maker National Oilwell Varco Inc. (NOV - Analyst Report) reported strong third-quarter 2014 results, buoyed by activity gains (particularly in the ‘Rig Systems’ segment) and good project execution skills.

Earnings per share (excluding one-time items) came in at $1.76, comfortably surpassing the Zacks Consensus Estimate of $1.55 and improving from the year-ago adjusted profit of $1.61.

Quarterly revenues increased 17.4% year over year from $4,761 million to $5,587 million and also came ahead of the Zacks Consensus Estimate of $5,508 million.

Last week, larger rival Cameron International Corp. (CAM - Analyst Report) also came out with earnings outperformance.   

Segmental Performance

Rig Systems: Revenues came in at $2,659 million, up 29% from the year-ago quarter, while revenue from backlog was $2,390 million. Moreover, the unit’s operating profit increased significantly (by 36% year over year) to $533 million. Operating margin, at 20%, also came ahead of 19% in the year-ago period. Oilfield equipment’s significant demand during the quarter aided the results.

Rig Aftermarket: The segment generated revenues of $837 million, up 17.6% from the year-ago period, while operating profit improved 13.4% from the third quarter of 2013 to $229 million. The positive comparisons emanate from the unit’s premium drilling technology. However, operating margin was 27.4%, reflecting a decline from 28.4% in the year-ago quarter, reflecting the lumpy nature of product mix and the timing of service work.

Wellbore Technologies: The segment’s revenues climbed 13.6% year over year to $1,469 million. Operating profit was up 35% from the year-earlier quarter to $278 million on U.S. market strength. Operating margin for the unit came in at 18.9%, up from 15.9% in third-quarter 2013.

Completion & Production Solutions: Revenues for the segment were recorded at $1,191 million, up 8.8% from $1,095 million in the year-ago quarter. The unit’s operating profit came in at $184 million, up 4.6% year over year on the back of improved demand for its floating production and subsea businesses. However, operating margin was 15.4%, lower than 16.1% in the year-ago quarter. This was attributable to a high percentage of low margin work.        

Backlog

Capital equipment orders’ backlog for Rig Systems was $14,340 million as of Sep 30, 2014, up 2% from the corresponding quarter last year.

Moreover, Completion & Production Solutions segment reported a backlog of $2,090 million in capital equipment order as at the end of the third quarter. The figure increased 39.4% from the year-ago quarter.

Balance Sheet

At the end of the third quarter, the company had cash on hand of $4,091 million and long-term debt of $2,995 million. The debt-to-capitalization ratio stood at approximately 12.2%.

Zacks Rank & Stock Picks

National Oilwell Varco – which earlier this year spun off its distribution business to form an independent entity NOW Inc. (DNOW - Snapshot Report) – currently retains a Zacks Rank #3 (Hold). This implies that the company is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can look at a better-ranked player in the same industry like PowerSecure International Inc. (POWR - Snapshot Report), which carries a Zacks Rank #2 (Buy).

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