On April 21, 2014, Halliburton (HAL) reported its 1Q14 earnings. The company generated EPS (earnings per share) of $0.73—above consensus estimates of $0.71. EPS were down sequentially from 4Q13 EPS of $0.93 due to normal seasonality, as HAL normally sees strong year-end software sales and 1Q was negatively impacted by weather in the North Sea, Russia, and Australia. 1Q14 EPS was up from $0.67 in 1Q13. Gross margin was 14% in 1Q14.
As of March 31, HAL had a cash balance of $2.1 billion, down from December 31’s cash of $2.4 billion. Total debt at the end of the period was $7.8 billion, unchanged from December 31, resulting in net debt of $5.7 billion. Total debt-to-capitalization at the end of the quarter was 34%.
In 1Q14, HAL generated $954 million of cash flow from operations, spent $643 million on capital expenditures, and generated $301 million in free cash flow. The company maintained capex guidance for 2014 of $3 billion (for reference, HAL spent $2.9 billion in capex in 2013).
In July 2013, HAL’s board approved an expansion to its share repurchase program of $4.3 billion, for a total of $5.0 billion of capacity to repurchase shares. In 1Q14, HAL repurchased 8.9 million shares for a total value of $500 million. At quarter’s end, $1.2 billion of capacity remained under the share repurchase program.
Market Realist comments
HAL is the second largest public oilfield service company, behind Schlumberger, and it’s the largest provider of pressure pumping (fracking) services. HAL is rated A2 and A by Moody’s and S&P, respectively, and it’s in healthy financial condition, as the company is moderately leveraged, has ample liquidity, and generates plenty of free cash flow (sufficient to keep debt levels flat and repurchase shares).
Compared to SLB, HAL has lower margins (14% margins in 1Q14, compared to SLB’s 22%) and is more leveraged (34% debt-to-cap, compared to 24%). It trades at a moderately lower multiple. Wall Street consensus estimates for HAL’s 2014 EPS and 2015 EPS are $3.99 and $5.03, respectively, resulting in respective forward PE estimates of ~16x and ~13x.
In this series, we discuss the 1Q14 earnings of Baker Hughes (BHI), Schlumberger (SLB), and Halliburton (HAL), which are all significant components of the VanEck Vectors Oil Services ETF (OIH) and the Energy Select SPDR ETF (XLE).
Continue to the next part of this series to read additional commentary from Halliburton.