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Baker Hughes (BKR) Q3 Earnings In Line, TPS Unit Impresses

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Baker Hughes Company (BKR - Free Report) reported third-quarter 2020 adjusted earnings of 4 cents per share, in line with the Zacks Consensus Estimate. The year-ago adjusted profit was 21 cents per share.   

Revenues totaled $5,049 million, beating the Zacks Consensus Estimate of $4,787 million. However, the figure was lower than the year-ago quarter’s $5,882 million.

Margin expansion in Oilfield Equipment and higher volumes in Turbomachinery & Process Solutions helped the company meet earnings estimates. Higher cost productivity in Turbomachinery & Process Solutions also benefited the company. However, the positives were partially offset by lower margins in Oilfield Services and Digital Solutions units.

Baker Hughes Company Price, Consensus and EPS Surprise

Baker Hughes Company Price, Consensus and EPS Surprise

Baker Hughes Company price-consensus-eps-surprise-chart | Baker Hughes Company Quote

Segmental Performance

Revenues from the Oilfield Services (OFS) unit amounted to $2,308 million, down 31% from the year-ago figure of $3,348 million. The downside was due to lower revenues from Asia Pacific, Middle East and Sub-Saharan Africa, partially offset by higher sales in Europe and Latin America. Operating income from the segment was $93 million, down from $274 million reported in third-quarter 2019.

Revenues from the Oilfield Equipment (OFE) unit totaled $726 million, marginally down from the prior-year quarter’s $728 million. The segment was affected by lower volumes in the company’s Offshore, Subsea Services, Surface Pressure Control and Subsea Drilling Systems businesses. The segment reported a profit of $19 million compared with the year-ago figure of $14 million. This year-over-year increase was caused by higher cost productivity.

Revenues from the Turbomachinery & Process Solutions (TPS) unit increased to $1,513 million from $1,197 million a year ago owing to higher equipment volumes. Moreover, segmental income increased to $191 million from $161 million in the third quarter of 2019 owing to higher cost productivity and volumes. The positives were partially offset by higher equipment mix.

Revenues from the Digital Solutions (DS) segment amounted to $503 million, down 17% from $609 million in the year-ago quarter. Operating profit at the segment totaled $46 million, down 44% from the year-ago quarter’s $82 million. The segment was affected by lower volumes.

Orders

Total orders from all business segments for third-quarter 2020 were $5,106 million, down 34% year over year due to lower order intakes in all the four segments. The company witnessed 40% decrease in equipment orders and 28% decline in service orders for the third quarter.

Free Cash Flow

It generated positive free cash flow of $52 million in the reported quarter compared with $161 million in the year-ago period.

Capex & Balance Sheet

Baker Hughes’ net capital expenditure for the third quarter totaled $167 million, lower than $199 million in the year-ago period.

As of Sep 30, 2020, the company had cash and cash equivalents of approximately $4,061 million, down from $4,132 million in the second quarter. At third quarter-end, it had a long-term debt of $6,754 million, down from the sequential figure of $6,766 million. It had a debt-to-capitalization of 28.1%.

Outlook

Being able to overcome oil market volatility in the first half of the year, the company expects the markets to somewhat stabilize going forward. Even though the company is seeing demand recovery, the excess capacity in the market can result in further market volatility. However, lower production in the United States and higher demand in Asia are expected to trigger an improvement in the natural gas outlook. Baker Hughes expects to achieve $700 million in annualized cost savings by 2020-end.

Zacks Rank & Stocks to Consider

The company currently has a Zacks Rank #3 (Hold). Some better-ranked players in the energy space include EOG Resources, Inc. (EOG - Free Report) , Solaris Oilfield Infrastructure, Inc. (SOI - Free Report) and Premier Oil plc (PMOIY - Free Report) , each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

EOG Resources’ sales for 2021 are expected to jump 19.5% year over year.

Solaris Oilfield’s bottom line for 2021 is expected to surge 133.3% year over year.

Premier Oil’s bottom line for 2021 is expected to surge 80% year over year.

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