Halliburton Company (HAL) — one of the largest oilfield service providers in the world — reported marginally better–than-anticipated fourth-quarter results, benefiting from increased activity in North America. Earnings per share from continuing operations, excluding receivable settlement charge in Venezuela, came in at 28 cents, a penny above the Zacks Consensus Estimate.
Revenue & Profitability
On a year-over-year basis, Halliburton’s adjusted earnings per share was down more than 46% while revenue decreased 25% to $3.7 billion, hurt by weaker drilling activity and pricing pressures in the all-important 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 39% of Halliburton’s total revenue and 21% of its operating income.
Completion & Production Segment
Business-segment-wise, Halliburton’s Completion and Production segment revenue was almost flat sequentially but was down nearly 29% year-over-year to $1.8 billion, while its operating income was $170 million, a decrease of 29% from the previous quarter and 73% from the corresponding quarter of last year.
Weakness in international activity was a drag on this segment, where operating income decreased $106 million sequentially and $121 million year-over-year, primarily due to lower activity across all product service lines in Mexico, seasonal weather in Russia and vessel activity declines in the North Sea and West Africa, as well as declines in completion tools sales in the Middle East and lower activity for production enhancement services throughout the Middle East/Asia region. This was partially offset by recovery in production enhancement services and cementing services in U.S. land.
Drilling & Evaluation Segment
Revenue from Halliburton’s Drilling and Evaluation business was up 6% sequentially but down 21% year-over-year to $1.9 billion. The segment’s operating income rose 10% from the September quarter, however it fell more than 44% from the year-ago period to $312 million.
Operating income in Latin America was $28 million during the quarter, down 46% from the previous quarter and 72% from the fourth quarter of 2008, mainly on the back of bad debt expense related to the accounts receivable settlement in Venezuela and lower natural gas drilling activity in Mexico. This dragged down the segment profitability from the year-ago period, partly offset by better performance in Norway and Asia. Additionally, drilling activity in the Gulf of Mexico continues to recover, reflected by the more than doubling of North American operating income from the third quarter levels.
Balance Sheet
Halliburton’s capital expenditure in the fourth quarter was $474 million, bringing the figure for the full year 2009 to $1.9 billion. At the end of the quarter, the company had approximately $2.1 billion in cash and $4.6 billion in long-term debt (including current maturities), representing a debt-to-capitalization ratio of 34.3%.
Outlook
Halliburton management indicated that North America margins had bottomed in most basins during the third quarter and now appears to be poised for a rebound. The world’s second-largest oilfield services company after Schlumberger Limited (SLB) sees 2010 as a transition year in which the industry looks to balance supply growth with recovering hydrocarbon demand.
We currently rate Halliburton shares as Neutral.
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