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Baker Hughes (BKR) Up 13.6% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Baker Hughes (BKR - Free Report) . Shares have added about 13.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Baker Hughes due for a pullback? 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 catalysts.

Baker Hughes Q1 Earnings Beat on Solid Oilfield Services

Baker Hughes Company reported first-quarter 2020 adjusted earnings of 11 cents per share, which beat the Zacks Consensus Estimate of 9 cents. However, the bottom line fell 27% from the year-ago quarter’s adjusted profit of 15 cents.   

Revenues totaled $5,425 million, missing the Zacks Consensus Estimate of $5,637 million. Moreover, the figure was lower than the year-ago quarter’s $5,615 million.

The better-than-expected earnings were supported by strong performance of the Oilfield Services segment, and higher cost productivity in Turbomachinery & Process Solutions despite unfavorable business environment. This was partially offset by lower volume in the company’s Surface Pressure Control and Services businesses. The businesses were affected by lower demand for the company’s products due to the coronavirus-induced lockdowns that destroyed energy demand.

Segmental Performance

Revenues from the Oilfield Services unit amounted to $3,139 million, up 5% from the year-ago figure of $2,986 million. Operating income from the segment was $206 million, up from $176 million reported in first-quarter 2019. The upside was driven by its strong performance despite unfavorable business environment caused by the coronavirus pandemic. It set a new record of remotely drilling 1.8 miles in 24 hours. Notably, the company delivered 150 remote wireline jobs through five regions.

Revenues from the Oilfield Equipment unit totaled $712 million, down 3% from the prior-year quarter’s $735 million. Notably, the segment reported a loss of $8 million against the year-ago quarter’s profit of $12 million. This year-over-year decline was caused by lower volume in the company’s Surface Pressure Control and Services businesses. The negatives were partially offset by higher volume in Subsea Production Systems and Flexible Pipe businesses.

Revenues from the Turbomachinery & Process Solutions unit declined to $1,085 million from $1,302 million a year ago, owing to lower equipment and services sales, as well as business dispositions. However, segmental income increased to $134 million from $118 million in the first quarter of 2019, owing to higher cost productivity.

Revenues from the Digital Solutions segment amounted to $489 million, down 17% from $592 million in the year-ago quarter. Operating profit at the segment totaled $29 million, down 57% from the year-ago quarter’s $68 million. The segment was affected by lower volumes from most of the businesses on account of the coronavirus pandemic.

Orders

Total orders from all business segments in first-quarter 2019 were $5,532 million, down 3% year over year, due to lower orders in Subsea Production Systems and Services businesses.

Free Cash Flow

The company generated positive free cash flow of $152 million in the reported quarter versus negative free cash flow of $419 million in the year-ago period.

Capex & Balance Sheet

Baker Hughes’ capital expenditure in the first quarter totaled $325 million, higher than $235 million in the year-ago period.

As of Mar 31, 2020, the company had cash and cash equivalents of approximately $3,010 million, and a long-term debt of $6,285 million, representing a debt-to-capitalization ratio of 25.9%.

Outlook

The company expects uncertainty in the oil and gas industry to prevail going forward. Economic recovery from the coronavirus pandemic and supply response to the market situation will drive future crude price environment. The company expects to cut costs and optimize portfolio to navigate through the current market uncertainty. It expects to reduce 2020 capital expenditures by more than 20% from 2019 levels.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted 79.31% due to these changes.

VGM Scores

Currently, Baker Hughes has a nice Growth Score of B, though it is lagging a lot 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 B. 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 this revision 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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