Halliburton Co. (HAL) – one of the largest oilfield service providers in the world – reported better-than-anticipated first-quarter 2010 results, helped by strengthening activity in North America, partly offset by weak demand across Latin America. Earnings per share from continuing operations, excluding the impact of Venezuela devaluation, came in at 28 cents, 3 cents above the Zacks Consensus Estimate.
Revenue & Profitability
On a year-over-year basis, Halliburton’s adjusted earnings per share was down more than 36% while revenue 4% to $3.8 billion, hurt by the still weak natural gas fundamentals in the North American region to which the company is heavily exposed through its market-share-leading pressure-pumping business. During the quarter, North America accounted for approximately 45% of Halliburton’s total revenue as well as its operating income.
Completion & Production Segment
Business-segment-wise, Halliburton’s Completion and Production segment revenue was up 8% sequentially but was down more than 3% year-over-year to $2.0 billion, while its operating income was $238 million, an increase of 40% from the previous quarter but 34% below the year-earlier level.
Operating income in North America increased significantly (by $92 million) from the fourth quarter, buoyed by the recovery in production enhancement services and cementing services in U.S. land and Canada on the back of higher activity in unconventional gas and oil basins. Despite the rebound, quarterly income was still down 17% compared to the first quarter of 2009.
However, weakness in international activity was a drag on this segment, where operating income decreased $24 million sequentially and $96 million year-over-year, primarily due to seasonally lower activity in the North Sea, Russia, China, and Australia, as well as project delays in Algeria, partly offset by improved performance in southern Mexico and Venezuela, together with stronger activity in Indonesia.
Drilling & Evaluation Segment
Revenue from Halliburton’s Drilling and Evaluation business was down 4% both sequentially and year-over-year to $1.8 billion. The segment’s operating income fell 13% from the December quarter and 11% from the year-ago period to $270 million.
Operating income in Latin America was $17 million during the quarter, down 39% from the previous quarter and 69% from the first quarter of 2009, mainly on the back of seasonally lower demand for software throughout the region and lower activity for testing and subsea services in Brazil. Additionally, Middle East/Asia operating income decreased $48 million sequentially and $26 million year-over-year, mainly due to activity declines across all product service lines in Southeast Asia and lower wireline and perforating direct sales in China.
This dragged down the segment profitability from the previous quarter as well as from the year-ago period, partly offset by higher horizontal drilling activity in U.S. land, in addition to higher demand for drilling services in Norway and Angola.
Balance Sheet
Halliburton’s capital expenditure in the first quarter was $404 million. As of Mar 31, 2010, the company had approximately $1.4 billion in cash and $4.6 billion in long-term debt (including current maturities), representing a debt-to-capitalization ratio of 33.8%.
Outlook
Halliburton management indicated that North American markets continue to strengthen. Land activity in the U.S. increased, as energy operators persisted with the development of unconventional reservoirs and firm oil prices led to an increase in oil-related drilling activity. But natural gas fundamentals still remain weak. Continued glut in domestic gas supplies, the end of the three-month cold snap (from December ‘09 through February ’10), as well as the rapid rise in the natural gas rig count, has renewed investor skepticism about natural gas prices.
Halliburton’s Latin America and eastern hemisphere results were below par during the quarter. However, the world’s second-largest oilfield services company after Schlumberger Limited (SLB) sees a steady resurgence in international activity in the second half of the year and into 2011.
Houston, Texas-based Halliburton offers a variety of equipment, maintenance, and engineering and construction services to the energy, industrial, and government sectors.
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