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Analyzing Baker Hughes’s Value Drivers in 1Q18

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Baker Hughes’s segment-wise revenues

Baker Hughes, a GE Company (BHGE), released its 1Q18 financial results on April 20. On a combined business basis, from 1Q17 to 1Q18, Baker Hughes’s Oilfield Services segment saw 12% higher revenues, followed by the Digital Solutions (4.4% revenue up). Baker Hughes’s Oilfield Equipment and Turbomachinery & Process Solutions segments witnessed a revenue decline (7.3% and 11.2% revenue fall) YoY (year-over-year) in 1Q18.

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Baker Hughes’s segment-wise operating income

In regards to the adjusted operating income, Baker Hughes’s Oilfield Services segment’s operating income increased 85% YoY in 1Q18. In contrast, the operating income in the Oilfield Equipment segment turned to a $6-million loss in 1Q18 from an operating income of $50 million last year. The operating profit declined 53% in the Turbomachinery & Process Solutions segment in 1Q18—compared to last year.

Positive value drivers in 1Q18

  • There was an increased share of higher-margin product and synergy realization following Baker Hughes’s merger with GE’s oil and gas business. In 1Q18, Baker Hughes realized $144 million of synergies. The company could have $700 million of synergy realization in 2018.
  • There were 10% higher orders in the Turbomachinery & Process Solutions and Oilfield Services segments.
  • The Digital Solutions segment had volume growth and strong cost productivity.

Negative factors that impacted 1Q18 earnings

  • Lower activity in Latin America, Asia, and the Middle East had a negative impact on the Oilfield Services segment.
  • Decreased activity in the drilling systems business, flexible pipe business, and offshore business had a negative impact on Baker Hughes’s Oilfield Equipment segment’s orderbook.
  • There was a lower contractual services volume in the Turbomachinery & Process Solutions segment.

Baker Hughes accounts for 0.90% of the iShares U.S. Energy ETF (IYE). IYE provides exposure to US companies that produce and distribute oil and gas. IYE decreased 1% in the past year—compared to a 15% fall in Baker Hughes’s stock price during the same period.

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

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