July 30 (Reuters) - National Oilwell Varco Inc, the largest U.S. oilfield equipment provider, said more demanding delivery schedules for its rig technology were driving up staff and freight costs, eating into margins at the company’s biggest business.
The company’s second-quarter profit met average analysts’ estimates, but shares fell 4 percent on worries about declining margins at the rig technology unit. The unit generated more than 50 percent of total revenue in the quarter.
“What we’re seeing right now is an even more challenging ramp up in activities in that group (the rig technology unit) and a much more challenging delivery schedule - we shaved 10 or 12 months off of the time it takes to build a rig,” Chief Operating Office Clay Williams said on a call with analysts.
“Extraordinary efforts to hit delivery targets are driving higher freight and personnel costs.”
Margins at the rig technology business have fallen for 6 quarters in a row. They fell to 20.7 percent in the second quarter, from 23.7 percent, a year earlier
National Oilwell’s overall margins have also declined due to a weak drilling market in North America, where natural gas-directed activity has fallen due to weak prices.
Revenue from the rig technology business rose 18 percent in the second quarter on strong demand, while backlog for equipment orders rose 24 percent to a record $13.95 billion.
Orders for floating production equipment more than doubled in the second quarter, from the first quarter, while rig orders were strong, National Oilwell said.
New orders totaling $3.15 billion in the second quarter were higher than market expectations, Barclays analyst James West said.
Analysts at Simmons & Co said lower margins at the rig technology business would weigh on the stock more than the higher orders.
Net income fell 12 percent to $531 million, or $1.24 per share. Adjusted profit of $1.33 per share was in line with analysts’ expectations, according to Thomson Reuters I/B/E/S.
National Oilwell shares were trading down nearly 3 percent at $69.16 in morning trade on the New York Stock Exchange.