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Halliburton Still Sees “Moving Parts” after 3Q15 Earnings

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Halliburton’s 3Q15 revenues

Halliburton Company (HAL) released its 3Q15 financial results on October 19, 2015. We will discuss its latest quarterly results in this series.

First up is a snapshot of Halliburton’s 3Q15 revenues and earnings. The company recorded total revenues of $5.58 billion for 3Q15, down 36% from $8.70 billion recorded in 3Q14. Halliburton’s revenues for the latest quarter decreased mostly due to a slowdown in its North American operations. The company’s North American operations have declined since 1Q15, when the US rig count decline started to accelerate.

Adjusted operating income decreased 65% to $506 million in 3Q15 from $1.44 billion recorded in 3Q14. Operating income does not include impairments and other charges like the Baker Hughes (BHI) acquisition-related costs.

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Halliburton’s 3Q15 earnings versus 3Q14

Halliburton’s net income crashed in 3Q15. The company recorded a $54 million net loss in 3Q15 versus $1.2 billion in net income in 3Q14. Geography-wise, operating earnings decreased mostly in its North American operations.

Product-wise, the Completion & Production segment suffered the most. Overall, HAL’s net income margin slumped to -1% in 3Q15 from 13.8% margin a year earlier. Net income margin equals the net income attributable to HAL shareholders divided by total revenues for the quarter.

Why did Halliburton’s net income slump in 3Q15 versus 2Q15?

Compared to 2Q15, Halliburton’s earnings deteriorated sequentially. In 2Q15, it recorded $54 million net income. In 2Q15, the company recorded a much lower $306 million pretax impairment charge. It also recorded $83 million in Baker Hughes acquisition-related costs in 2Q15. In comparison, HAL’s impairment charges were higher at $381 million in 3Q15, while the Baker Hughes acquisition-related costs were $82 million.

Baker Hughes (BHI), which Halliburton agreed to buy, as announced in November 2014, recorded 39% revenue decline in 3Q15 over 3Q14. This was driven by ongoing weakness in the US onshore market, as well as an unfavorable product mix in BHI’s Gulf of Mexico operation.

Halliburton’s 3Q15 earnings per share (diluted) decreased to -$0.06 from $1.41 recorded in 3Q14. Halliburton constitutes 3% of the Energy Select Sector SPDR ETF (XLE).

Is a recovery in sight?

Halliburton’s chairman and chief executive officer, Dave Lesar, discussed the energy market’s recovery. He commented in the 3Q15 press release, “There are a number of moving parts in the market today, and we are not going to try to call the exact shape of recovery, but we expect that the longer it takes, the sharper it will be.”

Next, we will discuss Halliburton’s earnings versus estimates.

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