Why Halliburton Expects Flat Earnings in Q3 2018

Expected Q3 earnings

Jeff Miller, the president and CEO of Halliburton (HAL), noted during the company’s second-quarter earnings call, “Looking to the third quarter, I expect our earnings will be similar to what we delivered in the second quarter due to the temporary issues facing North America.”

One of the issues facing Halliburton’s North American market is an increase in trucking costs due to the increased usage of trucks to move crude oil and sand. Another issue is the constraint in the Permian Basin takeaway capacity. The company also expects temporary softness in its Marcellus Basin production activity, although only for the rest of 2018.

The above factors, as well as new capacity additions by Halliburton’s competitors, may put pricing pressure on the company’s offerings. All these issues may temporarily impact Halliburton’s performance in North America. As the graph below shows, North America is Halliburton’s primary market.

Why Halliburton Expects Flat Earnings in Q3 2018

Segmental performance

Halliburton’s Completion and Production segment’s operating income rose 34.0% sequentially in the second quarter, driven by growth in pressure pumping and artificial lift activity in the US land sector.

Higher pressure pumping services in the Europe/Africa/CIS (Commonwealth of Independent States) region and higher completion tool sales in the Middle East further contributed to its growth in operating income. The chart below shows Halliburton’s segmental operating income over the last ten quarters.

Why Halliburton Expects Flat Earnings in Q3 2018

HAL’s Drilling and Evaluation segment’s operating income rose 2.0% sequentially in the second quarter. This growth was driven by an increase in:

  • drilling activity in the US land sector
  • drilling and project management services in the Middle East and India
  • software sales in Mexico

Halliburton forms ~13.9% of the VanEck Vectors Oil Services ETF (OIH) and 9.3% of the iShares US Oil Equipment & Services ETF (IEZ).