Baker Hughes’s Free and Operating Cash Flows in Focus



Baker Hughes’s operating cash flows and capex

In this article, we’ll analyze how Baker Hughes’s (BHI) operating cash flows trended over the past few quarters. We’ll also discuss how its free cash flows (or FCF) were affected given its capital expenditures (capex).

Baker Hughes’s cash from operating activities (or CFO) increased more than 5x in 2Q16 over 2Q15. It was also a huge improvement over 1Q16. BHI generated ~$3.6 billion CFO in 2Q16. Despite lower revenue in the past year, high CFO was driven mainly by a $3.5 billion termination fee from Baker Hughes (BHI).

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Baker Hughes’s free cash flow

BHI’s capital expenditure (or capex) fell 73% in the past year through 2Q16. So lower capex, coupled with a rise in CFO, resulted in nearly a 10x FCF rise in 2Q16 over a year ago. In 2Q16, BHI’s FCF was a $3.5 billion. Baker Hughes’s FCF has been positive in nine out of the past 13 quarters.

In comparison, Forum Energy Technologies’ (FET) FCF was $12 million in 2Q16. FET is Baker Hughes’s lower market cap peer. BHI is 0.12% of the SPDR S&P 1500 Value Tilt ETF (VLU).

Baker Hughes’s capex plans for 2016

BHI lowered its 2016 capex guidance from $300 million to $400 million. Earlier, in 1Q16, BHI’s capex guidance for 2016 was $450 million to $550 million. Baker Hughes spent $965 million on capex in 2015. Lower capex and working capital improvement can lead to higher free cash flows for BHI. BHI intends to maintain disciplined capital deployment, as uncertainty continues to grip the energy sector.

Next, we’ll discuss Baker Hughes’s dividends and dividend yields.


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