Baker Hughes (BHI) reported second-quarter earnings of $0.41 per share, compared with the Zacks Consensus Estimate of $0.45 and a year-ago profit of $1.36 per share.
The significant year-over-year downfall in earnings was due to lower activity levels, severe contraction in customer spending and price deterioration. Including one-time items, Baker Hughes’s earnings were $0.28 per share versus $1.23 per share in the year-earlier quarter.
Segment Performance
Revenue from Baker Hughes’ Oilfield operations was $2.34 billion, down 22% year over year and 12% sequentially. Pre-tax operating profit fell nearly 65% year over year and more than 37% sequentially to $239 million. Pre-tax operating margin for the quarter was 10%, compared to 23% in the year-ago period and 14% in the previous quarter.
Revenue from the Drilling and Evaluation segment decreased 27% year over year and 14% sequentially to $1.12 billion. The segment’s pre-tax operating profit was down 80% year over year and 51% sequentially. Pre-tax operating margin in the quarter was 7%, compared to 24% a year ago and 12% in the previous quarter.
In the Completion and Production segment, revenue was down approximately 17% year over year and more than 10% sequentially to $1.22 billion. The segment’s pretax operating profit decreased 48% year over year and 28% over the previous quarter, while pretax operating margin was 14%, compared to 22% last year and 17% in the previous quarter.
Liquidity and Capex
At the end of the quarter, Baker Hughes had $1.36 billion in cash and cash equivalents, while long-term debt stood at $1.83 billion, representing a debt-to-capitalization ratio of 20.5%. The company spent $291 million on capital expenditures during the quarter, compared to $312 million in the year-ago period.
Outlook
While Baker Hughes is a diversified oilfield service player like Schlumberger (SLB) and Halliburton (HAL), it is more product-centric than the other two. The company bagged more than $1.5 billion contracts in the second quarter for several products like artificial lift, intelligent completions, directional drilling, directional fluids, drill bits, wireline and oilfield chemicals.
Geographically, Baker Hughes is well positioned in Brazil, where it continues to deliver a broad base of products and services. In addition, the recent strengthening of oil prices may support E&P activities, setting the stage for incremental growth in 2010. However, price concessions that were managed in the first half of 2009 will drive international profitability lower in the second half of the year.
While the operating environment remains challenging worldwide, the hardest hit region is the onshore U.S. market due to its natural gas centric orientation. Of the large-cap service players, Baker Hughes has the least exposure to this market. In our view, the key negative is the unfavorable macro backdrop, which is expected to continue drowning out the positives, at least in the near term. As such, we recommend a Neutral rating for Baker Hughes shares.
Read the full analyst report on “BHI”
Read the full analyst report on “SLB”
Read the full analyst report on “HAL”
Zacks Investment Research