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Halliburton Beats Estimates For 1QFY14

Halliburton Beats Estimates For 1QFY14
By: Micheal Kaufman
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The stock price of the Halliburton Company (HAL) is up over 3.5% in the first hour of trading today, due to the favorable earnings results for the oilfield services company’s first quarter of fiscal 2014 (1QFY14; ended March 31, 2014), which it reported the opening bell today. Since the start of the year, the stock price of the Houston, Texas-based firm has increased 20%, outperforming the Market Vectors Oil Services ETF (OIH) by 13.7%.

Analyst’s Expectations

Halliburton reported revenues of $7.35 billion during the quarter, a 5.4% increase year-over-year (YoY). The company also beat analysts’ estimates of $7.24 billion by 1.5%. Halliburton has now beat revenue estimates for two consecutive quarters. It reported net income of $616 million, which translates to adjusted earnings per share (EPS) of $0.73, an increase of 9% YoY. It has now beat earnings estimates for 22 consecutive quarters.

Segment Performance

The company’s Completion and Production (C&P) segment reported revenues of $4.42 billion, a 7.8% YoY increase. The segment contributed 60.2% of the company’s total revenues for the quarter. The revenue increase was primarily driven by stronger growth in revenues from onshore drilling in the US.

C&P contributed $661 million, or 62.4%, to the operating income of Halliburton. Operating income from the segment experienced growth of 7.5% YoY, driven by a greater contribution from strong onshore activity in the US due to better operating margins.

The Drilling and Evaluation (D&E) segment of the company reported revenues of $2.93 billion, equaling 39.8% of total revenues. Revenues for the segment increased 1.8% YoY due to a greater volume of drilling activity in the Eastern Hemisphere and improved testing activity in all regions, which offset the decline in activity in Latin America activity for Halliburton.

The D&E segment had operating income of $398 million for the quarter, a decline of 2.2% YoY. The drop in operating profit was due to contracting margins because of decreased logging services in the US onshore business.

Geographic Performance

North America’s revenues rose 5.3% over the year-earlier period to $3.9 billion, while operating income remained flat at $602 million. The results from the region were impacted by a decline in offshore pumping and mixing equipment, weather-related issues, and higher logistic costs.

Latin America’s sales declined 9.1% YoY to $860 million. The region’s operating income also declined 8.3% YoY to $100 million, because of lower volume of drilling-related activity in Brazil and activity reduction in Mexico. Halliburton has contracts with Petroleo Brasileiro Petrobras SA (ADR) (PBR), more commonly known as Petrobras. Work in new fields has been slower than expected, leaving Halliburton with high infrastructure and personnel costs.

Europe, Africa, and Russia’s revenues increased 9.4% YoY to $1.3 billion for the quarter. The region’s operating income increased 20.7% YoY to $146 million.  The improved performance was due to more drilling activity in Angola and Norway, along with higher equipment sales in the region.

Revenues from Middle East and Asia increased 13.5% YoY to $1.29 billion. The region’s operating income also rose 12.8% YoY to $211 million. The region’s better performance was due to increased drilling services in Thailand and Saudi Arabia, which were partially offset by a decline in logging sales in China.

Halliburton Company’s Outlook

The company expects its earnings to soar 25% in 2QFY14, with further growth in the coming quarters. The 25% increase in earnings was in line with Street estimates of expected adjusted EPS of $0.91 at the end of 2QFY14. Halliburton also expects an expansion in margins from North America during the second half of 2014, and to approach 20% before the end of the year. The region has an operating margin of 15.3% in 1QFY14.

Although Latin America faced a decline in revenues and operating income, the company expects the region to report revenues and operating income in line with 2013 levels. Last year, Latin America reported revenues of $3.90 billion and operating income of $518 million.

The Street’s View

Currently, 37 analysts cover the stock on the Street. 29 analysts have given the stock a Buy rating, while only two analysts rate it as a Sell. The average of the 12-month target price given by these analysts is $66.57, which translates to an upside of 9.3% from Thursday’s closing price of $60.90. In the past year, Halliburton’s stock price has increased 65.5%.

On Thursday, Schlumberger Limited (SLB) reported better-than-expected earnings for 1QFY14, but missed revenue estimates for the quarter. Its stock price declined over 1% during the day, indicating that investors weren’t content with the company’s recorded earnings.

On the other hand, Baker Hughes Incorporated (BHI), which also reported its financial results on the same day, saw its stock price increased 3% during the day. It beat revenue and earnings estimates for the quarter, and the company expects increased demand for its technology given the increasingly complex nature of oil production.

However, in the last three quarters, Halliburton’s stock price has declined by an average of 2.2%, three days after its earnings announcements.

You can read Bidness Etc’s detailed investment analyses of Baker Hughes and Schlumberger.

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