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Did Baker Hughes Beat 2Q16 Earnings Estimates?

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Baker Hughes’s 2Q16 revenues

Baker Hughes (BHI) released its 2Q16 financial results on July 28. The company recorded total revenues of ~$2.4 billion, down ~39% from ~$4.0 billion in 2Q15. Baker Hughes’s revenues for the latest quarter decreased mostly due to lower spending by upstream companies on drilling activities and lower prices for BHI’s products and services in the Eastern Hemisphere.

Compared to 1Q16, Baker Hughes’s 2Q16 revenue fall was relatively moderate at 10%. By comparison, 2Q16 revenue for Halliburton (HAL), BHI’s peer, decreased 35% year-over-year.

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Baker Hughes’s 2Q16 earnings

Baker Hughes’s 2Q16 adjusted net EPS (earnings per share) came in at -$0.90. This fell significantly short of sell-side analysts’ consensus EPS estimate of -$0.62. BHI’s operating losses in all of its geographic operations as well as in the Industrial Services segment pushed its adjusted earnings below analysts’ estimate. Compared to 2Q15, BHI’s adjusted loss fell sharply in 2Q16.

On average, Baker Hughes’s adjusted EPS have fallen short of consensus EPS estimates by ~12% in the past 13 quarters. Baker Hughes makes up 5.1% of the VanEck Vectors Oil Services ETF (OIH), an ETF tracking an index of 25 oilfield services companies.

What affected Baker Hughes’s reported earnings in 2Q16?

In 2Q16, BHI’s reported net loss was $911 million. This is a steep fall from 2Q15, when BHI reported a net loss of $188 million. The 2Q16 net loss was on par with its 1Q16 net loss of $981 million. In 2Q16, the company’s net income fell from various charges, including the following:

  • $1.1 billion in asset impairments, workforce reductions, facility closures, and contract termination charges
  • $1.8 billion in goodwill impairment charges related to BHI’s North America operations and BHI’s Industrial Services segment
  • $621 million in write-off and excess inventory disposal charges
  • $142 million in early debt extinguishment charges

Partially offsetting these charges was a $3.5 billion fee BHI received in connection with the merger termination with Halliburton (HAL). The proposed merger was terminated on May 1.

In the next part of this series, we’ll discuss BHI’s growth drivers.

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