Large-cap energy equipment maker National Oilwell Varco Inc. (NOV - Analyst Report) reported strong fourth-quarter 2014 earnings, buoyed by improved operating margins across all segments.

Earnings per share (excluding one-time items) came in at $1.69, beating the Zacks Consensus Estimate of $1.60. Moreover, the bottom line increased 13% from fourth-quarter 2013 adjusted profit.

Quarterly revenues increased almost 8% year over year from $5,302 million to $5,709 million. However, the top line failed to surpass the Zacks Consensus Estimate of $5,711 million.                       

Segmental Performance

Rig Systems: Revenues came in at $2,561 million, up 7% from the year-ago quarter, while revenues from backlog were $2,270 million. Moreover, the unit’s operating profit increased roughly 12% year over year to $511 million. Operating margin of 20% also came ahead of 19.1% in the year-ago period. Significant demand for oilfield equipment aided the results.

Rig Aftermarket: The segment generated revenues of $850 million, up 12% from the year-ago period, while operating profit surged 25% year over year to $245 million. Moreover, operating margin was 28.8%, reflecting an improvement from 25.8% in the year-ago quarter.

Wellbore Technologies: The segment’s revenues climbed almost 12% year over year to $1,529 million. Operating profit was up 13% from the year-earlier quarter to $276 million. Operating margin for the unit came in at 18.1%, up from 17.9% in fourth-quarter 2013.

Completion & Production Solutions: Revenues for the segment were recorded at $1,325 million, up 15% from $1,155 million in the year-ago quarter. The unit’s operating profit came in at $215 million, up 17% year over year. Additionally, operating margin was 16.2%, higher than 15.9% in the year-ago quarter. Strong demand for capital equipment drove the results.   

Backlog

Capital equipment orders’ backlog for Rig Systems was $12,540 million as of Dec 31, 2014, down 17% from the corresponding quarter last year.However, Completion & Production Solutions reported a backlog of $1,780 million in capital equipment order at the end of the fourth quarter. The figure increased 9% from the year-ago quarter.

Balance Sheet

At the end of the fourth quarter, the company had $3,536 million cash on hand and long-term debt of $3,014 million. The debt-to-capitalization ratio stood at approximately 13.2%.

Outlook

National Oilwell expects 2015 to be challenging as most of its customers have decided to trim expenditure for oilfield activities in a weak oil pricing environment.

Zacks Rank & Stock Picks

Houston, TX-based National Oilwell currently carries a Zacks Rank #4 (Sell), implying that the stock will underperform the broader U.S. equity market over the next one to three months.  

Meanwhile, better-ranked players in the energy sector include Seadrill Partners LLC (SDLP - Snapshot Report), Valero Energy Partners LP (VLP - Snapshot Report) and Tesoro Corp. (TSO - Analyst Report). All these stocks carry a Zacks Rank #2 (Buy).