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Baker Hughes’s Earnings Drivers in 3Q17

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Baker Hughes’s 3Q17 revenue by segments

From 3Q16 to 3Q17, Baker Hughes’s, a GE company (BHGE), Oilfield Services segment saw 8.6% higher revenues, while the Turbomachinery & Process Solutions segment’s revenue rose 2%. Its Oilfield Equipment segment suffered the steepest revenue fall of 27.6% among its segments. Baker Hughes accounts for 0.05% of the iShares Dow Jones US ETF (IYY). Since September 29, 2017, IYY has risen 9%—compared to a 6% fall in Baker Hughes’s stock price during the same period. On September 29, 2017, Baker Hughes ended 3Q17.

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Baker Hughes’s segment margin analysis

In terms of the adjusted operating income, Baker Hughes’s Oilfield Services segment’s operating loss of $40 million in 3Q16 turned to a $75 million operating profit in 3Q17. In contrast, its operating loss in the Oilfield Equipment segment, where revenues also fell in 3Q17, was $43 million—compared to an operating profit of $61 million a year ago. Baker Hughes’s operating profit fell in the Turbomachinery & Process Solutions and Digital Solutions segments in 3Q17—compared to a year ago. The adjusted operating income excludes merger and related costs.

Negative earnings drivers

  • There’s a challenging subsea market with low activity and pressured pricing.
  • There’s a deceleration in the US rig count.
  • An over-supplied LNG (liquefied natural gas) market has kept natural gas prices low. It had a negative impact on Baker Hughes’s Turbomachinery & Process Solutions segment.
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Positive earnings drivers

  • A gradual recovery in the measurement and controls-based product portfolio benefits Baker Hughes’s Digital Solutions segment.
  • Baker Hughes has a strong well construction business in North America.
  • There are long-term service contracts and gas and steam turbine installations.
  • There are strong revenues from completions, artificial lift, and the drilling services suite.
  • There’s an 18% year-over-year rise in order bookings.

Earnings comparison with peers in 3Q17

Baker Hughes reported a net loss of ~$104 million in 3Q17. In comparison, Tidewater’s (TDW) reported net loss was ~$1.1 billion in 3Q17. In 3Q17, TechnipFMC’s (FTI) net income was $118 million, while Halliburton’s (HAL) net income was $361 million. Read Could Moderation in US Markets Affect Halliburton in 4Q17? to learn more.

Next, we’ll discuss the short interest in Baker Hughes.

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