Houston based energy services giant Baker Hughes reported stronger than expected second quarter earnings on Wednesday before the market open. The company sees Q3 and FY23 revenues in line with estimates BKR reported revenue of $5.7 billion for the first quarter of 2023, 25% over the same period last year, and slightly better than the 24% increase that Wall Street expected. Net income of $410 million handily beat expectations, compared to a loss of $839 million last year. Orders increased 28% year-over-year to $7.5 billion. The stock traded at new 52-week highs today at $35.865.
Like it’s peer Halliburton the company has been generating free cash flow well above analyst expectations. Baker Hughes’ free cash flow was about 3.8 times what it reported a year earlier, and management raised its low end of revenue outlook.
Baker Hughes: $BKR Reported Before Open Wednesday
Baker Hughes Q2 2023 Earnings
- Net income attributable to the company was $410 million, compared to a loss of $839 million last year.
- On a per-share basis, unadjusted earnings were $0.40, a marked improvement from the $0.84 loss reported last year.
- Adjusted profit came in at $0.39 per share in the second quarter, compared to $0.11 per share in the corresponding period of last year
- Revenue totaled $6.3 billion in the June quarter, up 25% from the comparable period of 2022
- The top line benefitted from a 28% year-over-year increase in orders to $7.5 billion
- A major portion of the increase came from its gas tech equipment business, which saw an 87% year-over-year increase in orders, reaching $1.6 billion, including $900 million in LNG awards.
- Second-quarter adjusted EBITDA was $907 million, up 39% year-over-year
BKR: Stock Market Reaction
- $35.20 +0.16 (0.46%)
- $35.20 +9.31 (35.96%) Over year
- $35.20 +3.42(10.76%) Over 5 years
- 52wk High $35.865 (today)
- 52wk Low $19.88
Despite the lower oil and natural gas prices leading to a falling rig count and with-it U.S. activity the pullback has been limited to private operators, and primarily to natural gas focused. Baker Hughes Chief Executive Lorenzo Simonelli said on the call Wednesday morning.
This is significant as private drillers now account for just 52% of U.S. rigs, down from 62% at the peak last year, according to a recent Goldman Sachs report citing data from Enverus the WSJ highlighted.
Additionally, the hard years when oil collapsed led to improved efficiencies just as with the oil and gas companies. Baker Hughes is now reaping those benefits.
Oil prices are down by roughly 25% compared with a year earlier, but U.S. crude benchmark futures stand at $76.17 a barrel, well above the $63 a barrel that U.S. oil producers said they needed on average for drilling to be profitable, according to a second-quarter survey from the Kansas City Fed. This might help explain why a basket of oil-field services providers are up 8.5% year to date while a basket of producers is down 1.3%.Jinjoo Lee WSJ July 17, 2023
BKR received $900 million in LNG orders. One of the major LNG awards Baker Hughes received was from Bechtel Energy to supply three main refrigerant compressors for NextDecade’s Rio Grande LNG project, which reached a final investment decision earlier this month. Baker Hughes expects this demand to only grow.
“Based on the continued development of the LNG project pipeline, we still expect the market to exceed 65 million tons per annum of (final investment decisions) this year and should see a similar level of activity in 2024,” Simonelli said. “We continue to see the potential for this LNG cycle to extend for several years with a pipeline of new international opportunities expanding project visibility out to 2026 and beyond.”
Two New Segments, OFSE and IET (Announced in Q3)
CEO, Lorenzo Simonelli on the release
“Last month, we announced a restructuring and re-segmentation of the company into two reporting segments, OFSE (oil field services and equipment) and IET (industrial and energy technology). These changes are designed to sharpen our focus, improve operational execution and better position Baker Hughes to capitalize on the quickly changing energy markets.”
BKR is looking for the reorganization to improve operations and profitability and may yield more than $150 million in cost savings. The new structure was made official Oct. 1st, the first day of the fourth quarter.
Baker Hughes increased its guidance for its industrial and energy technology segment by $1 billion to a range of $11.5 billion to $12.5 billion after reaching a record volume of remaining performance obligations, exceeding $27 billion in the business segment. Backlog for both IET and the oil field services and equipment segment reached $31 billion.
Baker Hughes Peer’s Earnings
General Electric Demerger
On June 26 2022 $GE announced it will divest its 62.5 percent stake in Baker Hughes in the next two or three years in a bid to simplify its structure and boost shareholder returns. GE acquired the Baker Hughes in July 2017, creating the second largest oilfield services provider by revenue.
Baker Hughes today announced will keep technology, capabilities and infrastructure obtained through the merger despite its breakup with GE.
“There are agreements in place to ensure there is a seamless separation. We’ll work with GE as they evaluate the timing and structure,” Simonelli said..
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