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Earnings Preview: Halliburton

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Major oilfield services provider Halliburton Company (HAL - Free Report) is scheduled to report its third quarter 2012 results on Wednesday, October 17 before the opening bell.

The Zacks Consensus Estimate for the to-be-reported quarter is a profit of 68 cents per share (with a downside risk of 2.94%) on revenues of $7.2 billion. In the year-ago quarter, Halliburton recorded a gain of 94 cents per share, while sales came in at $6.5 billion.

Second Quarter Recap

Halliburton’s second-quarter 2012 results came in better than expected, helped by higher activity in the international markets, partially offset by weak North America results.

Earnings per share from continuing operations came in at 80 cents, beating the Zacks Consensus Estimate of 75 cents and flat year over year.

Revenues of $7.2 billion were 21.9% greater than that achieved during the second quarter of 2011 and also surpassed the Zacks Consensus Estimate of $6.9 billion, as sales increased across the company’s business units.

(Read our full coverage on this earnings report: International Biz Lifts Halliburton).

Points to Ponder for Third Quarter

Halliburton enjoys a strong competitive position within the global oilfield services markets. We like the company’s broad and technologically-complex product and service offerings, along with its robust financial profile.

It remains the best-positioned company in the U.S. pressure pumping market, with significant acreage positions in the highest profile plays, such as the Haynesville, Eagle Ford shale and Bakken.

However, certain issues in North America – characterized by depressed natural gas fundamentals and cost inflation – will adversely impact its third quarter results.

Additionally, the North American land rig count may plateau in the near future as growth in highly-productive horizontal drilling has led to a natural gas supply overhang and relatively weak natural gas prices in the U.S. market. This is likely to be only partially offset by the continued growth of oil- and liquids-rich reservoirs. A slowdown in U.S. land drilling will impair Halliburton’s business.

Moreover, a substantial relief in the cost for guar gum – a key constituent of the company’s market-leading hydraulic fracturing ('fracking') procedure – is not expected until 2013.

Agreement of Analysts

As a result of the above-mentioned factors, there has been a downward bias among Halliburton’s September quarter estimate revisions, particularly over the past 30 days. Out of the 24 estimates for the third quarter of 2012, 9 have been revised downwards, while none have gone in the opposite direction.

Magnitude of Estimate Revisions

As a result of estimates being revised southward over the past 30 days, the Zacks Consensus Estimate for the quarter has dropped by 3 cents (from 71 cents to 68 cents).

Surprise History

The company has a history of positive earnings surprises, surpassing the Zacks Consensus Estimate in each of the last 4 quarters. Halliburton has performed consistently during this period with its average earnings surprise being 3.34%. This implies that the company has beaten the Zacks Consensus Estimate by 3.34% over the last four quarters.

However, this time around, we do not expect Halliburton – the second largest member of the oilfield services contingent after Schlumberger Limited (SLB - Free Report) – to surpass expectations, as it has been struggling to cope with the sluggish North American rig activity, adversely affecting its margins and overall profitability.

Rating & Recommendation

Halliburton currently retains a Zacks #3 Rank (short-term Hold rating). We are also maintaining our long-term Neutral recommendation on the stock.

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