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Why Did Baker Hughes’s 4Q16 Earnings Miss Estimates?

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Baker Hughes’s 4Q16 revenues

Baker Hughes (BHI) released its 4Q16 financial results on January 26. The company recorded total revenues of ~$2.4 billion in 4Q16, down 29% from ~$3.4 billion in 4Q15. Baker Hughes’s revenues for the latest quarter fell mostly due to upstream project delays and a difficult labor environment in North Sea offshore projects in Europe.

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Revenue comparison with peers

Compared to 3Q16, Baker Hughes’s 4Q16 revenue was relatively resilient, increasing 2.4%. By comparison, 4Q16 revenue for Halliburton (HAL), BHI’s peer, rose 5% quarter-over-quarter. Schlumberger’s (SLB) 4Q16 revenues rose 1% in 3Q16.

Baker Hughes’s 4Q16 earnings

The 4Q16 adjusted net earnings per share (or EPS) for Baker Hughes is -$0.30, which fell significantly short of the consensus sell-side analyst EPS estimate of -$0.11. BHI continued to generate operating loss in North America, while its Europe, Africa, and Russia Caspian region operations also posted an operating loss. This loss pushed BHI’s adjusted earnings below analysts’ estimates. However, compared to 4Q15, BHI’s adjusted loss improved in 4Q16.

On average, Baker Hughes’s adjusted EPS has fallen short of the consensus EPS by ~8% in the past 13 quarters. Baker Hughes makes up 4.6% of the VanEck Vectors Oil Services ETF (OIH), an ETF tracking an index of 25 oilfield equipment and services (or OFS) companies.

What affected Baker Hughes’s reported earnings in 4Q16?

In 4Q16, BHI’s reported net loss was $417 million, which was an improvement over 4Q15 when BHI reported $1.0 billion in net loss. The 4Q16 net loss was in line with 3Q16 earnings when the company reported $429 million in net loss. In 4Q16, net income fell from various charges including:

  • $145 million (pre-tax) in asset impairments, workforce reductions, facility closures, and contract termination charges
  • $19 million (pre-tax) in merger-related costs
  • $97 million (pre-tax) in loss on the sale of a majority interest in the North America onshore pressure pumping business

Next, we’ll discuss BHI’s growth drivers.

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