Baker Hughes’ segment-wise performance
From fiscal 4Q14 to fiscal 4Q15, all of Baker Hughes’ (BHI) segments saw lower revenues. Its North America operations suffered the highest revenue decline, with a 65% fall, while the Industrial Services segment was the most resilient, with a 24% fall.
With respect to adjusted operating income, BHI’s North America segment switched to a $127 million loss in fiscal 4Q15 over $488 million operating income in fiscal 4Q14, due primarily to a rig count drop and pricing concession for BHI’s products and services. Even BHI’s other geographic segments saw steep income deterioration, with operating income declines varying between 76%–86%. Only the Industrial Services segment held steady, declining by a marginal 4.3% year-over-year.
BHI’s EBITDA, adjusted for impairment and restructuring charges, as well as merger and related costs, was $376 million in fiscal 4Q15, compared to $1.44 billion adjusted EBITDA in fiscal 4Q14, or down by 74%.
In comparison, Schlumberger’s (SLB) fiscal 4Q15 operating income slumped 54% compared to fiscal 4Q14. SLB’s market capitalization stands at $85.7 billion compared to BHI’s $18.4 billion. Baker Hughes comprises 1.6% of the Vanguard Energy ETF (VDE).
Factors that affected Baker Hughes’ fiscal 4Q15 performance
- lower prices for BHI’s services in the US
- lower drilling activity in Mexico as a result of customer budgetary constraints
- higher share of low-margin products in Middle East and Asia Pacific
- Industrial Services income decline was limited due to savings from cost reduction actions
Baker Hughes’ CEO warns
Baker Hughes’ chairman and chief executive officer, Martin Craighead, cautioned about the challenges lying ahead in fiscal 2016. In the fiscal 4Q15 press release, he noted, “At current commodity prices, the global rig count could decline as much as 30% in 2016, as our customers’ challenges of maximizing production, lowering their overall costs, and protecting cash flows are now more acute.”
Next, we will discuss Baker Hughes’ returns.