Baker Hughes Profit Soars - Analyst Blog

Baker Hughes Inc. (BHI) reported a more than three-fold jump in per share profit in the third quarter driven by the strength of the US Land market and seasonal recovery in Canada.

The company's earnings came in at 59 cents per share, compared with the Zacks Consensus Estimate of 46 cents and year-ago earnings of 18 cents. Notably, this was the first full quarter following the acquisition of BJ Services.

Revenue in the quarter was $4.08 billion, compared with $2.23 billion in the year-earlier quarter and the Zacks Consensus Estimate of $3.79 billion. Pre-tax operating margin increased approximately 5% year over year to 9.9%.

While Baker Hughes' bigger rival Schlumberger Ltd. (SLB) met our estimate in the third quarter, Halliburton Co. (HAL) posted better-than-expected quarterly results on the back of the all-important North American onshore activity. 

Of the Baker Hughes' total quarterly revenue, North America, Europe/Africa/Russia/Caspian, Middle East/Asia-Pacific and Latin America accounted for 49%, 19%, 15% and 11%, respectively. The rest is from the Industrial and Others segments. Following the completion of BJ Services merger, the company has started to report under five segments instead of the previous two (Drilling and Evaluation as well as Completion and Production).

A drastic improvement in before-tax operating profit was noticed in North America during the quarter. Operating profit in this region was $340 million, compared with a loss of $16 million in the year-earlier quarter. However, all other regions suffered from operating profit contraction.

At the end of the quarter, Baker Hughes had $1.86 billion in cash and cash equivalents, while long-term debt stood at $3.85 billion, representing a debt-to-capitalization ratio of 21.8% (up from 17.8% at the end of second quarter). The company spent $466 million on capital expenditures during the reported quarter.

Given the continuous growth of unconventional gas and oil-directed drilling in the U.S., Baker Hughes foresees North Americaas the key potential area, which helped the company to gain approximately 16% year-to-date. As the deepwater drilling moratorium has ended, we believe that the drilling scenario will gain traction with the resumption of drilling in the Gulf of Mexico, both in deepwater and in the shelf.

Baker Hughes' strong portfolio of products and services should help it post better-than-average results in North America and enable it to further penetrate international markets. We are currently Neutral on Baker Hughes with the Zacks #3 Rank (Neutral).