What Were Baker Hughes’s Value Drivers in 4Q17?



Baker Hughes’s segment-wise revenues

From 4Q16 to 4Q17, the Oilfield Services segment of Baker Hughes, a GE company (BHGE), saw a 10% rise in revenue, and BHGE’s Digital Solutions segment saw a 4.3% rise in revenue. On the other hand, the company’s Oilfield Equipment and Turbomachinery & Process Solutions segments witnessed revenue falls of 21% and 14%, respectively.

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Baker Hughes’s segment-wise operating income

In terms of adjusted operating income, BHGE’s Oilfield Services segment’s operating loss of $7 million in 4Q16 turned into a $113 million operating profit in 4Q17. In contrast, BHGE’s operating income in the Oilfield Equipment segment fell 78% in 4Q17.

BHGE’s operating profit fell 53% in the Turbomachinery & Process Solutions segment in 4Q17 compared to a year ago. Adjusted operating income excludes mergers and related costs, as we discussed in the previous part of this series.

Value drivers: Positives in 4Q17

  • BHGE’s increased volumes in North America, the Middle East, and Latin America
  • strong growth in completions, artificial lift, and drilling services
  • new unit business and downstream products business benefiting the Turbomachinery & Process Solutions segment
  • volume growth and strong cost productivity in the Digital Solutions segment

Negative factors that affected BHGE’s 4Q17 earnings

  • 27% fewer oilfield equipment orders driven by lower rig drilling systems orders
  • weaker oilfield services volumes in Europe and sub-Saharan Africa
  • a challenging subsea market in which activity remained low and pricing remained pressured
  • lower orders in the flow and process technologies business

Baker Hughes makes up 0.92% of the iShares U.S. Energy ETF (IYE). BHGE also makes up 0.06% of the SPDR S&P 500 ETF (SPY). The energy sector makes up 6.1% of SPX-INDEX. The S&P 500 Index has risen 23% in the past year compared to the 24% fall in BHGE’s stock price.

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


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