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Baker Hughes’s Revenue Growth Depends on These Value Drivers

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Baker Hughes’s revenue growth

Between 2Q15 to 2Q16, all of Baker Hughes’s (BHI) segments saw lower revenues. Its North America operations suffered the highest revenue decline with a 55% fall, while the Industrial Services segment was the most resilient with an ~11% fall. By comparison, McDermott International (MDR) saw a 32.5% revenue drop in 2Q16 over 2Q15.

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Baker Hughes’s operating income

Adjusted operating income wise, BHI’s North America segment operating loss deteriorated in 2Q16 over a year ago. BHI’s Europe/Africa/Russia Caspian operation was severely affected, switching to an adjusted operating loss in 2Q16 from an operating income a year ago. Even the Middle East/Asia operation and the Industrial Services segment turned to adjusted operating losses in 2Q16. Adjusted operating income excludes merger-related costs. Read more about Baker Hughes in Market Realist’s Baker Hughes’s Moving Averages Show It Has More Room to Run.

Baker Hughes’s value drivers

  • Although US rig count is still lower compared to a year earlier, it has started to move up. A higher rig count could benefit BHI’s revenues and earnings in 3Q16.
  • Activity reductions in offshore Mexico and reduced revenue from Ecuador had a negative impact on the company.
  • Reduced activity, pricing pressure, and an unfavorable product and geographic mix affected BHI’s North Africa, Nigeria, United Kingdom, and Angola regions negatively.
  • A steep rig count fall in Australia affected BHI’s Asia-Pacific region operations negatively.

However, cost-saving from restructuring activities and the favorable impact of foreign exchange rate movement in many of BHI’s’ international operations partially mitigated these negative factors. Baker Hughes makes up 0.12% of the iShares Core S&P 500 ETF (IVV). The energy sector makes up 7.4% of IVV.

Next, we’ll discuss how BHI’s management outlook transpired in the past quarters.

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