Baker Hughes Inc. (BHI) has posted an impressive second quarter of 2011, recording a year-over-year jump in per share profit on strong international operations. The company’s earnings of 93 cents a share inched pasted the Zacks Consensus Estimates by 2 cents, but showed a dramatic improvement from 23 cents earning a year ago.
Revenue shot up 41% to $4,741 million in the quarter from the year-earlier level of $3,374 million. The top line also exceeded the Zacks Consensus Estimate of $4,553 million.
Segmental Highlights
Of Baker Hughes’ total quarterly revenue, North America, Europe/Africa/Russia/Caspian, Middle East/Asia-Pacific and Latin America accounted for 50%, 17%, 15% and 11%, respectively. The remaining was generated by the Industrial and Others segment.
A strong improvement in before-tax profit was noticed in Latin America during the quarter. Pre-tax margin in this region came in at 13%, compared with 3% in the year-earlier quarter. North America recorded profit before-tax margin of 19% as against 14% in the year-ago quarter, while it was 13% for Middle East/Asia-Pacific (up from 7% in the second quarter 2010) and 10% (versus 8%) for Industrial Services and Other segment. The Europe/Africa/Russia/Caspian segment’s margin declined to 6% from the prior-year figure of 9%.
Liquidity
At the end of the second quarter, Baker Hughes had $937 million in cash and cash equivalents, while long-term debt stood at $3,549 million, representing a debt-to-capitalization ratio of 18.9%. The company’s capital expenditures were $594 million during the reported quarter.
Outlook
We believe that Houston, Texas-based Baker Hughes, the world’s third-largest oilfield services provider, is favorably positioned with a significant improvement in activity levels in both North America and the international regions. The company’s strong portfolio of products and services will help it generate better-than-average results in the domestic market and enable it to further penetrate international markets. The company also has a competitive set of technologies, which allows it to continue deepwater activity in the Gulf of Mexico (GoM).
The company expects its worldwide demand to show an improvement, particularly in China, India, developing Asia and the Middle East, which will in turn boost its international spending. Activity is also expected to climb in the second half of 2011 and into 2012 led by the steady improvement in Brazil and the Middle East and will consequently support pricing improvements.
However, we remain cautious about the tardy deepwater drilling in the U.S. Gulf region. While deepwater activities have increased, the pace of permits being issued has slowed significantly. Moreover, the company expects to incur incremental expenses associated with the increase in deepwater GoM regulation in the second half of 2011.
The company faces stiff competition from peers such as Schlumberger Ltd. (SLB) and Halliburton Co. (HAL), which also reported better-than-expected second quarter earnings.
We maintain a long-term Neutral rating on the stock. Baker Hughes currently retains a Zacks #2 Rank (short-term Buy rating).
