NOV Inc. Outlook Dims for Q3 2025 as Drilling Demand Weakens

Opening

NOV Inc., a prominent oilfield service provider, is facing a challenging third quarter of 2025, with consensus estimates indicating significant year-over-year declines in both earnings and revenue. This comes amid a broader slowdown in global and North American drilling activity, which continues to exert pressure on the energy sector.

The Event in Detail

NOV Inc. is scheduled to release its third-quarter 2025 results on October 27. The Zacks Consensus Estimate for Q3 2025 earnings is set at 24 cents per share, representing a 27.3% year-over-year decrease. Revenues are projected to decline by 2.4% from the year-ago period, reaching $2.1 billion.

Segment-specific forecasts suggest that the Energy Products and Services segment is likely to generate $983 million in revenue, a decrease from $1,003 million in the prior-year period. Concurrently, selling, general and administrative (SG&A) expenses are expected to rise by approximately 12.4% from the year-ago quarter, reaching an estimated $309 million.

Historically, NOV Inc. has demonstrated an average negative earnings surprise of 3.9% over the last four quarters, missing consensus estimates in three of those periods. This includes the preceding quarter, Q2 2025, where the company reported adjusted earnings of 29 cents per share, slightly below the Zacks Consensus Estimate of 30 cents.

Analysis of Market Reaction

The anticipated decline in NOV Inc.'s Q3 2025 performance is primarily attributed to a projected slowdown in global and North American drilling activity throughout 2025. This deceleration is influenced by various factors including economic pressures, rising breakeven costs for producers, and revised output forecasts. The increase in SG&A expenses further contributes to the expected margin compression.

Customers in the drilling sector are observed to be reducing short-cycle activities and opting to utilize spare parts from stacked equipment, thereby delaying new capital expenditures. This trend is reflected in the mid-teen decline anticipated for NOV Inc.'s aftermarket revenues for the full year 2025, especially in the Drilling Equipment business. The Energy Equipment segment's book-to-bill ratio stood at 66 in Q2 2025, indicating a softening demand for new orders.

Broader Context & Implications

NOV Inc.'s challenges are indicative of broader headwinds within the oilfield services sector. Data points highlight a significant downturn in drilling: U.S. oil rigs fell by 9 to 480 in April 2025, marking the largest weekly decline since June 2023. The Permian Basin, a key shale region, has experienced a 15% year-over-year reduction in rig activity. Furthermore, shale oil expansion slowed considerably to 1.2% in Q1 2025 from 3.8% in the previous quarter.

The company's business model, heavily exposed to drilling-related capital cycles, renders it particularly vulnerable to market volatility. This contrasts with companies adopting more service-based models. Internationally, NOV Inc. faces mixed performance, with slowdowns in markets such as Saudi Arabia, which has implemented additional onshore rig suspensions, and Argentina, where focus is shifting from conventional to unconventional plays. The company has also cited offshore market project delays and tariff expenses as significant operational challenges.

Working capital as a percentage of revenues was 30% in Q2 2025 and is projected to remain elevated at 27-29% for the full year, a factor that could limit free cash flow conversion.

Expert Commentary

Industry experts anticipate an acceleration of consolidation among smaller players within the drilling sector, primarily driven by existing capital constraints. The Zacks Consensus Estimate for NOV Inc.'s Q3 2025 earnings has remained stable over the past seven days, suggesting a firm consensus among analysts regarding the projected decline in performance.

Looking Ahead

The immediate outlook for NOV Inc. and the broader oilfield services sector is expected to remain challenging through the end of 2025, with continued slowdowns in North American shale and global drilling activities. Despite these near-term pressures, NOV Inc. expresses long-term optimism for accelerating offshore activity in 2026, suggesting a potential recovery in that specific segment, even with current delays in floating production storage and offloading projects. Investors will closely monitor the actual Q3 results against these subdued expectations, paying particular attention to forward guidance concerning drilling activity trends, cost management strategies, and the timing of any offshore market recovery.