NOV Inc. (NOV) Cash Flow Statement

The OCF/NI ratio collapsed from 1.77 in Q2 2025 to 0.15 in Q2 2026, indicating that earnings are not translating into cash. The $189M working capital outflow in Q2 2026, following a $189M inflow in Q1, suggests significant volatility in receivables and inventory. This pattern implies that reported profits may be supported by accruals rather than cash generation, warranting close monitoring of collection cycles and inventory levels.

The FCF trajectory has been erratic, with Q4 2025's surge driven by a $416M working capital release, while Q2 2026's negative FCF reflects a $189M working capital build. This volatility suggests that FCF is heavily influenced by timing of collections and payments, not just operational performance. The negative FCF in Q2 2026, despite a net income of $112M, indicates that earnings quality is weak and that the company may be funding working capital needs rather than generating distributable cash.

The extreme quarter-to-quarter swings in working capital, particularly in Q4 2025 and Q1 2026, suggest that NOV's cash flow is highly sensitive to the timing of customer payments and inventory purchases. The $189M outflow in Q2 2026, following a $189M inflow in Q1, indicates a possible build-up in receivables or inventory, which may signal slowing collections or deliberate inventory stocking. Investors should monitor days sales outstanding and inventory turnover to assess whether these swings are seasonal or indicative of deteriorating efficiency.

Capex as a percentage of revenue has remained in the 3-5% range, which is relatively low for an industrial manufacturer, indicating that NOV is prioritizing capital preservation over expansion. This level of investment may be sufficient to maintain existing assets but could limit the company's ability to capitalize on an industry upturn. The low capex intensity, combined with negative FCF in recent quarters, suggests that NOV is not investing aggressively for future growth, which may be prudent given the uncertain demand environment.

The company's capital deployment strategy appears aggressive relative to its cash generation, with dividends and buybacks totaling $127M in Q2 2026, while operating cash flow was only $17M. This gap was funded by existing cash reserves or debt, which may not be sustainable if cash flow remains depressed. The consistent buyback activity, averaging around $70M per quarter, suggests management is confident in the company's long-term value, but investors should monitor whether this confidence is justified given the weak cash conversion.

While cumulative operating cash flow is higher than net income, the quarterly volatility obscures the underlying trend. The large working capital inflows in Q4 2025 and Q4 2024 inflated cash flow, while Q1 2026 and Q2 2026 saw outflows. This suggests that earnings quality is inconsistent, and the company may be relying on working capital timing to boost cash flow. The divergence between net income and operating cash flow in recent quarters indicates that accruals are playing a significant role, and investors should be cautious about extrapolating current cash flow levels.