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Why Is Baker Hughes (BHGE) Down 14.1% Since Last Earnings Report?

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A month has gone by since the last earnings report for Baker Hughes (BHGE - Free Report) . Shares have lost about 14.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Baker Hughes due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Baker Hughes Misses on Q3 Earnings Estimates, Increases Y/Y

Baker Hughes, a GE company reported third-quarter 2018 adjusted earnings of 19 cents per share, which missed the Zacks Consensus Estimate of 21 cents. The downside was caused by a drop in volumes of contractual activities. This was partially offset by increased pressure pumping activities and contributions from Inspection Technologies. 

Revenues amounted to $5,665 million, which missed the Zacks Consensus Estimate of $5,891 million. Nevertheless, the figure improved from the year-ago quarter’s tally of $5,301 million.

Segmental Performance

Revenues in the Oilfield Services unit amounted to $2,993 million, up 12.5% from the year-ago quarter’s sales of $2,661 million.

Operating income in the business segment came in at $231 million, up from $88 million in third-quarter 2017.

Higher activities related to pressure pumping, artificial lift and completions & drilling primarily aided the segment.

Revenues in the Oilfield Equipment unit totaled $631 million, up 3% from the prior-year quarter’s tally of $613 million.

Moreover, the segment reported profit of $6 million, against a loss of $41 million in the July-to-September quarter of 2017. The upside can be attributed to rise in business volumes related to Subsea Services and Surface Pressure Control unit.

Revenues from the Turbomachinery & Process Solutions unit declined to $1,389 million from $1,414 million in the year-ago quarter.

Moreover, segmental income dipped to $132 million from $134 million in the third quarter of 2017, due to fall in volumes of contractual activities.

Revenues in the Digital Solutions segment amounted to $653 million, up 6.4% from $614 million in the year-ago quarter.

Operating profit in the business segment totaled $106 million, up 37.7% from the year-ago quarter’s level of $77 million. Higher contributions from businesses associated with Pipeline and Process Solutions supported the segmental performances.

Orders

Total orders from the all business segments through third-quarter 2018 came in at roughly $5.7 billion, unchanged year over year. Oilfield Services and Turbomachinery & Process Solutions business units contributed to roughly $3 billion and $1.6 billion orders, respectively.

Outlook

The company projects higher activities in several international markets. Baker Hughes also expects higher growth in the upcoming quarters which will be backed by rising rig count and operating wells in North America. The company is also optimistic about LNG and expects 65 million tons per annum of new capacity to be approved by 2020.

Balance Sheet

Baker Hughes’ capital expenditure in the third quarter grossed $94 million. As of Sep 30, 2018, the company had approximately $4.8 billion in cash, cash equivalents and restricted cash as well as $6.3 billion in long-term debt, representing a debt-to-capitalization ratio of 14.7%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -13.17% due to these changes.

VGM Scores

At this time, Baker Hughes has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Baker Hughes has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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