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Why next quarter looks better for BHI’s international markets

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Next quarter’s expectations

In the last part in this series, we discussed Baker Hughes’ (BHI) expectations for North American rig activities. In this part in the series, we’ll discuss BHI’s near-term prospects in its international markets.

BHI is part of the VanEck Vectors Oil Services ETF (OIH) and the Energy Select Sector ETF (XLE). Schlumberger (SLB) and Halliburton (HAL) are two other major oilfield equipment and servicing companies. They have strong international operations. SLB and HAL are also part of OIH.

Guidance

Latin America

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In Latin America, BHI expects year-end product sales to increase. It also expects the offshore Mexico rig activity to increase. It will benefit from a new drilling service contract in Brazil. It’s expected to start in December. Revenues and margins have already recovered during 3Q14. They’re expected to increase more.

Middle East and Asia Pacific

BHI’s year-end product sales should also benefit its the Middle East and Asia Pacific segment. The Iraq demobilization process was completed in 3Q14. This should also benefit the segment by lowering costs during 4Q14. During 3Q14, BHI lost an integrated turnkey project in Iraq. This led to higher demobilization costs.

Europe, Africa, and Russia Caspian

In the Europe, Africa, and Russia Caspian region, BHI is particularly bullish regarding Africa sales. However, the growth is expected to be partially offset by reduced activity and profitability in Russia. This is a result of currency fluctuation. During 3Q14, the Russian currency was devalued. This led to foreign currency loss.

Industrial Services segment

In its Industrial Services segment, BHI provides 5% higher revenue guidance than in 3Q14. In 3Q14, BHI recorded $333 million from this segment. So, it expects $350 million revenues.

This higher revenue should come from BHI’s recently acquired Pipeline and Specialty Services Business. However, its revenues existing process and pipeline and services business is expected to stay muted due to seasonality effect. Margins are expected to be ~10.5%. This is unchanged from 3Q14.

Across each of oilfield segments, BHI expects to see an increase in revenue and margins in 4Q14.

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