Why Is Baker Hughes’s Free Cash Flow Positive?


Dec. 16 2016, Updated 8:05 a.m. ET

Baker Hughes’s operating cash flows and capex

In this article, we’ll analyze how Baker Hughes’s (BHI) operating cash flows have 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) fell 72% in 3Q16 over 3Q15. It was also a steep deterioration over 2Q16, when BHI’s CFO was boosted by the $3.5 billion merger termination payment from Halliburton (HAL). BHI generated ~$119 million CFO in 3Q16. The company’s lower revenues during the past year primarily led to the lower CFO.


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Baker Hughes’s free cash flow

BHI’s capex fell 61% in the past year through 3Q16. However, lower capex could not offset CFO’s decline and in effect, its FCF fell 80% in 3Q16 over 3Q15. Baker Hughes’s FCF has been positive in ten out of the past 13 quarters.

In comparison, Nabors Industries’s (NBR) FCF was -$22 million in 3Q16, compared to -$90 million in 3Q15. NBR is Baker Hughes’s lower market cap peer. Schlumberger’s (SLB) 3Q16 FCF was $1.0 billion, while Halliburton’s (HAL) 3Q16 FCF was $863 million. BHI comprises 0.12% of the SPDR S&P 1500 Value Tilt ETF (VLU).

Baker Hughes’s capex plans for 2016

Baker Hughes (BHI) maintained its 2016 capex guidance from $300 million–$400 million. This was lower than its capex guidance of $450 million–$550 million, which was announced in 1Q16.

In 2015, Baker Hughes spent $965 million on capex. 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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