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Why Did Baker Hughes’s 4Q17 Earnings Beat Estimates?

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Baker Hughes’s 4Q17 revenue

Baker Hughes, a GE company (BHGE), released its 4Q17 and 2017 financial results on January 24, 2018. The company recorded total revenue of $5.8 billion in 4Q17, 3% lower than its 4Q16 revenues on a combined basis.

GE’s (GE) Oil & Gas segment’s merger with Baker Hughes was completed on July 3, 2017. For more information, read Market Realist’s Can the BHI–GE Partnership Benefit from Global Growth?

Despite strong well construction product line growth in North America, the Middle East, and Latin America and higher revenue in the Turbomachinery & Process Solutions segment, falls in longer-cycle businesses and low activity levels and pricing challenges in the subsea market led to BHGE’s aggregate revenues staying muted in 4Q17.

Compared to 3Q17, however, Baker Hughes’s 4Q17 revenue rose 7%. In comparison, the 4Q17 revenue of Schlumberger (SLB), BHGE’s larger market cap peer, rose 3.5% quarter-over-quarter. Read more about SLB in Market Realist’s Schlumberger: What to Expect after Strong 4Q17 Earnings.

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Baker Hughes’s 4Q17 earnings

Baker Hughes’s 4Q17 adjusted net earnings per share (or EPS) were $0.15. This result exceeded the consensus sell-side analyst EPS estimate of $0.14.

BHGE generated positive earnings in 4Q17. It switched to generating positive earnings in 3Q17 following ten successive quarters of adjusted losses. Strong operating profit growth in its Oilfield Services and Digital Solutions segments in 4Q17 primarily led to these improved earnings. However, a deceleration in the US rig count and a challenging subsea market partially offset its earnings growth in 4Q17.

On average, Baker Hughes’s adjusted EPS fell short of consensus earnings in the past 13 quarters. Baker Hughes makes up 4.7% of the VanEck Vectors Oil Services ETF (OIH), an ETF tracking an index of 25 oilfield equipment and services (or OFS) companies. Since September 29, 2017, OIH has risen 11% compared to the 8% fall in BHGE’s stock price during the same period. September 29, 2017, was the last trading day of BHGE’s 3Q17.

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What affected Baker Hughes’s reported earnings in 4Q17?

In 4Q17, the reported net loss attributable to BHGE was $29 million. The comparable net loss figure in 3Q17 was $104 million. In 4Q17, BHGE’s net income was impacted by various charges, including the following:

  • the $132 million impact of an exclusion of tax related to US tax reform
  • $119 million worth of restructuring charges
  • $63 million worth of merger and integration costs
  • a $126 million inventory impairment charge

How did Baker Hughes do in 2017?

In 2017, Baker Hughes’s revenue rose 30% compared to 2016. It saw a $242 million net loss in 2017 compared to a $334 million net income in 2016. In 2016, Baker Hughes received a $3.2 billion payment related to merger termination from Halliburton (HAL).

On January 22, Halliburton, the second-largest oilfield services company by market cap, released its 4Q17 and 2017 financial results. In 2017, HAL’s revenue rose 30% compared to 2016.

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

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