Oil field services company Baker Hughes Inc. (BHI) on Wednesday posted a steep decline in third-quarter profit, dented by weak performance across all of its business operations.
Q3 Results
The Houston, Texas-based company's third-quarter net income was $55 million or $0.18 per share, compared to $429 million or $1.39 per share in the year-ago quarter.
On average, 25 analysts polled by Thomson Reuters expected the company to post earnings of $2.26 per share. Analysts' estimates typically exclude special items.
The latest quarter results included expenses of $38 million before tax or $0.08 per share associated with reorganization, severance and acquisition costs, and an increase to the company's allowance for doubtful accounts.
Quarterly revenues totaled $2.23 billion, decline of 26% from the previous year's revenue of $3.01 billion, and fell behind the $2.26 billion revenue consensus estimate of sixteen analysts polled by Thomson Reuters.
Chad Deaton, chairman, president and chief executive officer of Baker Hughes, said, "Third quarter North America operating margins rebounded from the low set in the second quarter of 2009. Aggressive cost cutting in the first half of 2009 enabled us to absorb additional price decreases and improve profitability on modest activity increases."
Sales in the quarter dropped to $1.09 billion from $1.45 billion reported a year ago, and services and rentals revenue amounted to $1.14 billion, down from the prior-year's $1.56 billion.
Geographical Analysis
North American revenue fell 33%, to $817 million from $1.31 billion a year ago, reflecting changes in the North America rig count, which was down 52% year-over-year.
Quarterly revenues for Latin America decreased 7% to $265 million from $285 million last year, as increased revenue from the Mexico / Central America geomarket was offset by reduced revenue from the Venezuela and Argentina / Bolivia / Chile geomarkets.
Europe Africa Russia Caspian region witnessed quarterly revenue totaled $666 million, a decline of 24% from $874 million recorded in the year-earlier quarter, largely hampered by downturns in the Russia, UK and Norway geomarkets. Revenue declined year-over-year in all geomarkets with the exception of Angola.
Revenue for Middle East Asia Pacific region dropped 10% to $484 million from $539 million generated in the previous year. The company noted that the revenue revenue decline in the region was in line with the decline in the rig count, with higher revenue from the Australasia and India/Southwest Asia geomarkets being offset by lower revenue from all other Middle East Asia Pacific geomarkets.
Further, Baker Hughes noted that the International results were disappointing with revenue less than expected and price discounting greater than expected. The company's operating profit margin was also impacted by the extra costs it carried to assure a smooth organizational transition announced in May 2009.
Corporate Items
Total costs and expenses decreased to $2.12 billion from $2.41 billion in the previous year. Of this, cost of sales declined to $937 million from $1.03 billion last year, while cost of services and rentals decreased to $824 million from $996 million incurred in the same quarter of last year. Marketing, general and administrative expenses dropped to $272 million from $278 million in the prior-year period, and research and engineering expenses totaled $88 million for the recent quarter, versus the $103 million reported a year earlier.
During the third quarter of 2009, debt decreased $23 million to $1.81 billion, while cash and short-term investments rose $125 million to $1.49 billion as compared to the second quarter 2009. Capital expenditures were $222 million, depreciation and amortization expense was $177 million and dividend payments were $47 million in the third quarter 2009.
Year-To-Date Highlights
For the nine-month period, the company reported net income of $337 million or $1.09 per share, compared to $1.20 billion or $3.89 per share in the prior-year period.
Total revenues for the nine months ended September 30, 2009 were $7.24 billion, lower than the $8.68 billion reported in the comparable period of the previous year.
Future In Focus
Looking ahead, the company said the gradually increasing trend of the gas-directed drilling in North America will likely continue through 2010. Internationally, the company believes that customer spending reached its low point in the recent quarter and that forecasts for increasing economic growth, particularly in China, India and the Middle East, combined with modest spare production capacity are supporting higher oil prices and laying the foundation for increased spending in 2010.
Deaton added, "We are continuing to make good progress on the pending BJ Services transaction. Regulatory filings have been made in the US and in some international jurisdictions, and our preliminary proxy statement has been filed and is being reviewed by the SEC."
In addition, the company stated that it has received a 'second request' from the Department of Justice which is limited in product and geographical scope. Therefore, Baker Hughes currently expects the transaction to close in the first quarter of 2010.
Peer Performance
Baker Hughes' rivals, Halliburton Co. (HAL) reported a sharp decline in third-quarter profit that totaled $262 million or $0.29 per share, compared to $672 million or $0.74 per share in the year-ago quarter, largely hurt by continued pricing pressures in North America. Quarterly revenue dropped 3% to $3.59 billion from $4.85 billion reported in the previous year.
Another peer, Smith International Inc. (SII) posted lower third-quarter profit of $7.04 million or $0.03 per share, compared to $209.8 million or $1.00 per share a year ago, largely reflecting continued pricing pressure in the U.S. operations of the Distribution and Smith Oilfield segments. Revenues declined to $1.88 billion from the previous year's revenues of $2.85 billion.
Yet another competitor, Schlumberger Ltd. (SLB) reported third-quarter net income of $787 million or $0.65 per share, down from $1.526 billion or $1.25 per share last year, reflecting a sharp decline in revenues from Oilfield Services and WesternGeco segments. Revenues fell to $5.43 billion from $7.26 billion in the prior year quarter.
Stock Quotes
Baker Hughes shares, which have been trading between $24.40 and $48.19 in the past 52 weeks, closed Tuesday's trading session at $43.43.
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