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A Look at Baker Hughes’s Value Drivers in 3Q17

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Baker Hughes’s segment-wise revenues

From 3Q16 to 3Q17, the Oilfield Services segment for Baker Hughes, a GE Company (BHGE) saw 8.6% higher revenues. This segment was followed by Turbomachinery & Process Solutions, with a 2% revenue increase.

On the other hand, its Oilfield Equipment segment reported the highest revenue decline, a fall of 27.6%, among its segments.

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Baker Hughes’s segment-wise operating income

With respect to its adjusted operating income, BHGE’s Oilfield Services segment reported an operating loss of $40 million in 3Q16, which turned to a $75 million operating profit in 3Q17. In contrast, its operating loss in its Oilfield Equipment segment, where revenues also fell in 3Q17, was $43 million compared to its $61 million operating profit a year ago.

BHGE’s operating profit declined in its Turbomachinery & Process Solutions and Digital Solutions segments in 3Q17 compared to 3Q16. Its adjusted operating income excludes merger and related costs, as we discussed in the previous part of this series.

Value drivers: Positive factors in 3Q17

  • BHGE’s strong well construction business in North America
  • strong revenues from completions, artificial lift, and drilling services suite
  • gradual recovery in the measurement and controls-based product portfolio, benefiting BHGE’s Digital Solutions segment
  • 18% year-over-year rise in order bookings
  • long-term service contracts for fulfillment and gas and steam turbine installations
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Negative factors that affected BHGE’s 3Q17 earnings

  • A deceleration in US rig count: Only 6% onshore rig count rise in 3Q17 over 2Q17. In comparison, the US rig count increased nearly 40% year-to-date.
  • BHGE experienced a challenging subsea market, where activity remained low and pricing remained pressured.
  • BHGE saw an over-supplied LNG (liquefied natural gas) market, which has kept natural gas prices low. This has adversely affected BHGE’s Turbomachinery & Process Solutions segment.
  • BHGE experienced lower volume in the Flow & Process Technologies business

How did Baker Hughes do in 9M17?

In the first nine months of 2017, Baker Hughes’s revenues increased 18% over the first nine months of 2016. On October 20, Schlumberger (SLB), which has the largest market cap among oilfield services companies, released its 3Q7 earnings. In 9M17, Schlumberger’s revenues increased 8% over 9M16.

Baker Hughes comprises 0.95% of the iShares US Energy ETF (IYE). BHGE also comprises 0.06% of the SPDR S&P 500 ETF (SPY).

The energy sector makes up 6.0% of the SPX-INDEX. The S&P 500 Index (SPX-INDEX) increased 20% in the past one-year period versus a 9% fall in BHGE’s stock price.

Next, we’ll discuss Baker Hughes’s returns.

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