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Why Was Baker Hughes’s Free Cash Flow Negative in 2Q17?

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Baker Hughes’s operating cash flows

Baker Hughes’s (BHGE) CFO (cash from operating activities) remained negative in 2Q17, continuing its negative cash flow trend in 1Q17. BHGE’s CFO was -$64 million in 2Q17, though its CFO did show some improvements over 1Q17.

BHGE’s poor working capital management resulted in negative CFO in 2Q17. In this part of our series, we’ll analyze how Baker Hughes’s FCF (free cash flows) were affected by its capital expenditures, or capex.

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Baker Hughes’s free cash flow

BHGE’s capex rose 84% in 2Q17 on a YoY (year-over-year) basis. The increase in capex was mainly due to revenue generating asset additions designed to meet increased activity levels in the upstream sector.

The negative CFO coupled with higher capex led to a negative and deteriorating FCF in 2Q17 YoY. In 2Q17, BHGE’s FCF was -$193 million, compared to its solid $3.5 billion FCF in 2Q16. In 2Q16, Baker Hughes’s FCF was helped greatly by a merger termination payment from Halliburton (HAL).

Free cash flow comparison with peers

By comparison, Weatherford International’s (WFT) 2Q17 FCF was -$111 million, while TechnipFMC’s (FTI) 2Q17 FCF was $87 million.

Notably, Baker Hughes makes up only 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 during the same period.

In the next and final part, we’ll discuss Baker Hughes’s dividend and dividend yield.

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