Baker Hughes Slips, Profits Up - Analyst Blog

Baker Hughes Inc. (BHI) reported second-quarter 2010 earnings of 41 cents per share, compared with the Zacks Consensus Estimate of 43 cents and year-ago earnings of 28 cents. We have adjusted reported earnings for costs associated with the BJ Services merger and increased depreciation and amortization expenses.

Baker Hughes completed its acquisition of BJ Services on April 28, 2010.  The second quarter figures include results for BJ Services for the months of May and June.

The drilling moratorium in the Gulf of Mexico has negatively impacted Baker Hughes’ earnings in the quarter by 3 cents per share. The company said this could increase to 8–11 cents per quarter in the remaining two quarters of the year.

The increase in earnings were driven by the solid contribution from BJ Services’ operations and improved performances in the North America, Russia and Asia Pacific regions, partially offset by performances in Latin America and Africa.

Revenues in the reported quarter, including revenues for BJ Services in May and June 2010, were $3.37 billion, compared with $2.37 billion in the year-earlier quarter and the Zacks Consensus Estimate of $3.34 billion. Pre-tax operating profit margin increased to 10% from the year-earlier margin of 8%.

Sales revenues in the quarter increased more than 17% to $1.36 billion and Services and Rentals revenue increased 71% year over year, mainly due to the acquisition of BJ Services.

Of the total quarterly revenue, North America, Europe/Africa/Russia/Caspian, Middle East/Asia-Pacific and Latin America accounted for 44%, 22%, 16% and 11%, respectively. The rest is from the Industrial and Others segments. Following the completion of merger, the company has started to report under five segments instead of the previous two (Drilling and Evaluation as well as Completion and Production).

At the end of the quarter, Baker Hughes had $919 billion in cash and cash equivalents, while long-term debt stood at $2.91 billion, representing a debt-to-capitalization ratio of 17.8%. The company spent $338 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 America as key potential area. 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).
 
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