Why Baker Hughes Earnings Probably Couldn’t Have Been Better

Baker Hughes Co. (NYSE: BKR | BKR Price Prediction) reported third-quarter 2020 results before markets opened Wednesday. The oilfield services company posted adjusted earnings per share (EPS) of $0.04 on revenues of $5.05 billion. In the same period a year ago, GE reported adjusted EPS of $0.21 on revenues of $5.88 billion. Third-quarter results also compare to the consensus estimates for EPS of $0.04 on revenues of $4.78 billion.

On a GAAP basis, Baker Hughes posted an operating loss of $49 million, while adjusted operating income totaled $234 million. The company reported a GAAP loss of $16 billion in the second quarter, primarily due to asset impairments, restructuring and separation-related charges.

The company did not offer guidance, but analysts are expecting fourth-quarter earnings per share of $0.11 on revenues of $5.13 billion. For the full year, the consensus estimates call for $0.21 in EPS and $20.01 billion in revenues.

Baker Hughes’ oilfield services revenue dropped by 31% year over year and by 4% sequentially to $2.31 billion. North American revenue dipped by 7% sequentially to $559 million. Operating income in the segment totaled $93 million, a year-over-year decline of 66% and a sequential increase of $47 million, due to cost savings and restructuring.

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CEO Lorenzo Simonelli noted that oil markets stabilized “somewhat” in the third quarter after a turbulent first half. However, “demand recovery is beginning to level off and significant excess capacity remains, which could create volatility in the future.” He also said that strong demand for natural gas in Asia and reduced production in the United States have boosted prices.

Like nearly every other fossil-fuel-related company, Baker Hughes is “intensely focused” on boosting its margins and its returns at that same time that it becomes a “key enabler to decarbonizing oil and gas and other industries.”

Industry rivals Schlumberger N.V. (NYSE: SLB) and Halliburton Co. (NYSE: HAL) already have reported results that may have been somewhat worse than those Baker Hughes reported Wednesday morning. Halliburton’s third-quarter revenue fell 47% year over year and Schlumberger’s fell by 38%, compared to a drop of 14% at Baker Hughes. For all three, however, it is margin that matters, and as long as crude prices remain low, little new drilling will take place and well completions combined with other businesses cannot create similar margins.

Shares of Baker Hughes traded down about 1.4% just after Wednesday’s open, at $13.44 in a 52-week range of $9.12 to $25.99. The consensus price target on the stock is $20.31. The company’s dividend yield is 5.49%.

As for its competitors, Halliburton shares traded down 1.3% to $12.58, after gaining about 4.7% on Tuesday. The stock’s 52-week range is $4.25 to $25.47, and its consensus price target is $15.50. Halliburton pays a dividend yield of 1.47%.

Schlumberger stock traded down 1.3% to $15.28, after a gain of 3.2% on Tuesday. The 52-week range is $11.87 to $41.14, and the price target is $23.46. The company’s dividend yield is 3.23%.

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