NOV Earnings: Offshore Remains Central Performance Driver as North American Markets Remain Subdued

NOV NOV delivered solid third-quarter results, almost entirely driven by its offshore operations, which represent a bit under half of the firm’s overall business. This offsets adverse impacts from comparatively sluggish North American land markets, which we expect will remain subdued into early 2024. Revenue and adjusted EBITDA margin each expanded sequentially by 4% and 50 basis points, respectively. We maintain our no-moat rating and $23 fair value estimate following the results.

Offshore activity continues to gain momentum globally, and a robust pipeline of projects slated for final investment decisions over the next two years implies conditions will remain favorable for the next several years. Sales from NOV’s offshore drilling and completions businesses followed up last quarter’s strong top-line growth (up 18% versus the first quarter) with another 10% sequential expansion.

The rig technologies segment has by far the largest offshore exposure which, in addition to delivering the highest top-line growth, also drove the largest profitability expansion of NOV’s three segments. Adjusted EBITDA margin reached 14.5%, up nearly 300 basis points versus last quarter and more than 400 basis points year over year. Management guidance indicates further margin accretion is likely, and the segment will exit the year with a 15% margin, by our estimate. We foresee similar offshore-related tailwinds for the completion and production solutions segment in the future. This business has decent offshore exposure, about 35% to 40% of sales on average, which we expect will yield solid margin accretion in the future. Management indicated the segment is on track to deliver a double-digit EBITDA margin in the fourth quarter, a level not seen since 2020.