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Inside Baker Hughes’s Growth Drivers in 2Q17

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Baker Hughes’s revenue growth by segment

Baker Hughes’s (BHGE) North America segment saw 16.5% higher revenues from 2Q16 to 2Q17, while its Europe, CIS, and Africa operations suffered a revenue decline of 13%, and Latin America saw an 11.5% fall.

Schlumberger’s (SLB) revenue from North America increased 18% in 2Q17 over 1Q17. From 2Q16 to 2Q17, Nabors Industries’ (NBR) revenues increased ~10%. (You can read more about NBR in Market Realist’s series Nabors Industries’ 2Q17 Earnings Missed Estimates.)

Notably, Baker Hughes makes up 0.06% of the iShares Russell 1000 ETF (IWB). Since June 30, 2017, IWB has remained unchanged, compared with the 10% decline in BHGE’s stock price.

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Operating income growth

BHGE’s North America segment saw a $14-million operating profit in 2Q17, compared with its operating loss of $311 million in 2Q16. Its Europe, CIS, and Africa region also saw an operating profit, after seeing an operating loss one year ago.

Only BHGE’s Industrial Services segment continued to generate an operating loss in 2Q17.

Baker Hughes’s growth drivers

BHGE’s positive growth drivers include the following:

  • a nearly 118% higher North America rig count in 2Q17 on a YoY (year-over-year) basis
  • increased drilling activity and higher stimulation vessel utilization in the Gulf of Mexico
  • a shallow-water project award in Mexico in 2Q17
  • artificial lift revenue growth in Argentina
  • revenue growth and benefits from cost reductions in the Europe, Africa, and the Russian Caspian region

BHGE’s negative growth drivers include the following:

  • lower offshore cementing and vessel utilization in Brazil and Venezuela
  • price deterioration in the Middle East and Asia-Pacific
  • fewer frac stages in Saudi Arabia, causing loss of revenues
  • higher environmental costs in the downstream chemical business

Next, we’ll discuss the effect of the rig count and upstream operators’ capital expenditures on BHGE’s financial performance.

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