An Insight into Oil Markets: Earnings From Baker Hughes International
This morning, Baker Hughes International (NYSE: BHI) announced first quarter earnings results, beating analysts’ estimates.
Revenue of $5.355 billion bested estimates of $5.247 billion. Earnings per share came in at $0.86 compared to an expected $0.80.
But the bar, in this case, was set quite low. Baker Hughes pre-announced that results would be disappointing on March 21, so the estimates that were just beaten had already been revised downward from $1.12 per share before the warning.
Beyond the earnings themselves, the announcement has important implications for both Baker Hughes and the energy industry as a whole.
Baker Hughes provides the full range of oilfield and shale gas services, competing largely with Schlumberger and Halliburton. Nevertheless, despite its 40-year history, Baker Hughes is very much a company in transition.
Currently Baker Hughes is in the process of integrating its April 2010 acquisition of BJ Services, which has allowed them to round out their product offering. (Before that acquisition, Baker Hughes lacked a major presence in pressure pumping – the process of cementing and stimulating new oil and natural gas wells.)
This integration hasn’t gone exactly as planned, however. Nearly all of the troubles for this quarter came from the North American pressure pumping business. Despite the hype around the natural gas boom, drillers are increasingly shifting production from natural gas to oil, and Baker Hughes’ logistical system wasn’t ready for such a shift.
Still, in nearly every other area Baker Hughes is thriving. International sales, earnings and profit margins are up over last year.
The company recently reported a large deal with Maersk Oil, gaining a foothold in the valuable Russian pressure pumping market.
Finally, the company expects a large expansion of sideways drilling – Baker Hughes’ specialty – in the Permian Basin.
“We expect to see the same tidal wave shift to more horizontal and service intensive activity as we’ve seen in other areas in the past. The Permian is a market where Baker Hughes is particularly strong, especially our pressure pumping business,” says CEO Martin Craighead, “So we are well-positioned to benefit from this opportunity.”
With a long track record of success, high ratings amongst its customers, and success in most areas aside from integrating its new acquisition, Baker Hughes is a smart bet on a short-term turnaround.
Ahead of the tape,