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Baker Hughes (BHI) |
HenryTo
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 Posted: Mon Aug 31, 2009 12:21 pm Post subject: Baker Hughes (BHI) |
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Morningstar on the strategic implications of the BJ Services acquisition by Baker Hughes.
| Quote: | | Baker Hughes BHI announced Monday that it had agreed to acquire BJ Services BJS in a $5.5 billion cash and stock transaction. The agreement calls for BJ Services shareholders to receive 0.40035 share of Baker Hughes and $2.69 in cash for each share of BJ Services stock. At Friday's closing prices, the deal values BJ Services at around $17.95 a share, slightly above our fair value estimate. BJ Services shareholders will own about 27.5% of the combined company, provided the firms receive the necessary stockholder and other customary approvals. The merger is expected to close by the end of the year. We had long anticipated such a deal between the two companies, as it fills major holes in both product lines and makes a great deal of strategic sense. Baker Hughes will be better able to compete by offering a more complete bundled services offering, which could help it win international integrated project-management efforts. The deal gives BJ Services' pressure pumping operations a bigger global platform, and probably makes re-entering Russia a much more palatable option. As a stand-alone business, BJ Services was unable to compete in Russia with just a single major product line and planned to essentially shut down its operations in the country in the next few months. However, with Baker Hughes' larger product line, we think the combined company could be a far more effective competitor. We wil l update our forecasts for Baker Hughes and BJ Services, but we do not expect a large change in our fair value estimates. |
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Baker Hughes (BHI) Replies |
HenryTo
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| Posted: Wed Mar 21, 2012 11:43 am Post subject: |
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BHI takes a 5% hit in trading today. Following is Morningstar's take.
| Quote: | | Baker Hughes BHI announced Wednesday that its first-quarter North American and international margins will be sharply lower than fourth-quarter levels because of market conditions in the pressure pumping product line and seasonality and project delays in the international markets. North American margins are expected to be between 13.2% and 14.2% for the first quarter versus an adjusted 18.7% in the fourth quarter of 2011 and our 18.8% forecast for all of 2012. International margins are expected to be between 12.2% and 13.2% versus an adjusted 15.6% in the fourth quarter and our 2012 forecast of 17.7%. As a result of the warning, we expect to lower our fair value estimates for Baker Hughes, Halliburton HAL, Patterson-UTI Energy PTEN, and Schlumberger SLB, which will all face similar headwinds in 2012. The actual impact on our fair value estimates will vary. We believe there are some Baker Hughes-specific execution issues, and better execution by Schlumberger and Halliburton, which have more pressure pumping experience, could lead to stronger relative performance. In North America, Ba ker Hughes indicated that continued gas-to-oil rig switching is causing lower levels of utilization for its crews, lower pricing, higher-than-expected crew and logistical costs, and product shortages for critical raw materials such as gel. In short, the gas-to-oil rig switching is hurting crew productivity as workers have to learn the new reservoir dynamics and also introducing logistical challenges because the new play requires substantially more proppant and equipment to properly frac. Baker Hughes had previously indicated that it thought it could resolve the logistical challenges by mid-2012 with the construction of several new facilities, which could have provided some margin uplift in the second half of 2012. Given that the scale of the challenges appears to be greater than Baker Hughes thought in January, we expect this forecast might also be revised when the firm reports second-quarter earnings in April. Internationally, Baker Hughes indicated that seasonality, weathe r, geographic mix, and project delays in Latin America drove the lower margins. Oil services companies typically report weaker international results in the first quarter because the fourth-quarter numbers include companies using up their remaining calendar-year budgets as well as heavy high-margin software purchases and renewals. However, the estimated 300-basis-point decline is greater than we'd expect from seasonality, weather, and geographic mix alone. Thus, we believe the Latin American project delays are the real driver of the lower margins. Latin America, particularly Mexico, has been a source of difficulty for the industry as a whole over the past few years, thanks to project delays, budget challenges on the part of Pemex, price competition particularly from Weatherford WFT, and poorly written contracts that rewarded higher levels of drilling activity rather than maximizing oil production. We believe Mexico and Pemex have switched to more performance-oriented contacts to alleviate the original contractual issues, which had reaccelerated growth in the region in the past few quarters, but it appears that Mexico will continue to be source of frustration and limited profitability for the oil services industry. |
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HenryTo
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| Posted: Tue Jan 24, 2012 4:18 pm Post subject: |
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Morningstar on BHI's 4Q earnings.
| Quote: | | Baker Hughes BHI reported decent fourth-quarter results. Revenue was $5.4 billion, up 4% from the third quarter, while adjusted operating profit was $905 million and roughly flat with the prior quarter. Like Halliburton HAL, Baker Hughes struggled in North America this quarter, with sand, gel, and crew costs and availability causing margins in the region to decline to 18.7% from 22.3% last quarter. Baker Hughes expects to resolve the issues by the second half of 2012. The firm also offered a more conservative outlook than the more bullish Halliburton regarding North America by guiding toward a flat rig count at the end of 2012 from the fourth-quarter exit numbers. Internationally, Baker Hughes met its 15% international margin goal, with an adjusted margin of 16% for the fourth quarter. Baker Hughes echoed similar comments from its peers when it highlighted growth areas for 2012 in the Latin America, Middle East, and deep-water markets. In addition, the firm continues to successfully obtain sales, general, and administrative efficiencies, with SG&A costs declining to 5.6% of revenue in the fourth quarter versus 7.6% last year and 12% at the start of 2010. Baker Hughes took a $220 million aftertax charge relating to the impairment of the BJ Services trade name, as it plans to minimize the use of the BJ Services brand as part of the overall branding strategy for Baker Hughes. Overall, our Best Idea thesis for improving international results and decent North American numbers remains intact. |
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HenryTo
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| Posted: Tue Nov 01, 2011 11:42 pm Post subject: |
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Morningstar on BHI's 3Q earnings:
| Quote: | | Baker Hughes BHI reported solid third-quarter results. Revenue was $5.18 billion, up 9% sequentially, and operating income improved 32% to $817 million over the same time frame. The firm benefited from a strong rebound from the seasonal rig breakup in Canada and North American margins were 22.3%, up 370 basis points sequentially. The margin performance places the firm ahead of Weatherford's WFT 21.7% North American margin for the quarter, but still behind regional leaders Halliburton HAL and Schlumberger SLB at 29.3% and 25.3%, respectively. Internationally, Baker Hughes reported healthy levels of sequential revenue growth at around 4%. However, international operating margins declined 125 basis points to 12.2% over the same time frame if we exclude a $70 million expense in the second quarter associated with the civil unrest in Libya. The margin decline is due to changes in geographic and product mix, and Baker Hughes still expects to reach its 15% international margin goal in the fourth quarter. Baker Hughes' international performance is very respectable when compared with its peers' performance over the last quarter. Weatherford and Schlumberger delivered sequential revenue growth in the 2%-3% range, and Halliburton delivered best-in-class performance at 7%. Schlumberger's international margins are still the among the best in the industry at 18.2%, thanks to a strong presence in the Middle East, but Baker Hughes' 12.2% margins are ahead of Halliburton's 11.3% and Weatherford's 9.8%. We believe delivering a 15% international margin internationally in the fourth quarter will serve to differentiate Baker Hughes from its peers. Overall, our thesis for Baker Hughes remains intact. |
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HenryTo
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Location: Los Angeles, California
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| Posted: Mon Jul 25, 2011 11:35 am Post subject: |
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Morningstar on BHI's 2Q earnings:
| Quote: | | Baker Hughes BHI turned in solid second-quarter results. Revenue was $4.74 billion, up 5% sequentially, thanks primarily to higher overseas activity. North American revenue was essentially flat at $2.4 billion and operating income declined slightly to $440 million, as the increase in U.S. land activity was unable to offset the seasonal decline in Canada. We believe second-half comparisons will look much improved, as Canadian activity levels are very strong this year, thanks to intensive shale drilling. Overall, operating income dipped slightly to $617 million from $640 million as a result of a $70 million aftertax charge associated with various Libyan write-offs and an increase in doubtful accounts. Going forward, the firm highlighted demand growth in China, India , and the Middle East as international oil and gas spending drivers. We expect that Brazil will also continue to be an important customer for the industry. In our eyes, Baker Hughes remains well positioned worldwide to obtain its fair share of work. |
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HenryTo
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Location: Los Angeles, California
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| Posted: Tue Jan 25, 2011 3:30 pm Post subject: |
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Morningstar on BHI's 4Q results:
| Quote: | | Baker Hughes BHI has had a bumpy path integrating BJ Services, which has resulted in some disappointing quarters. However, fourth-quarter results were very good, as the company is finally realizing some of the benefits from the merger and its ongoing reorganization efforts. Fourth-quarter revenue was $4.4 billion, up 8% sequentially, and operating income jumped 39% over the same time frame to $562 million. Most of the financial improvement was due to a strong North American market, where Baker Hughes' operating margin now stands at a respectable 22%. Industry leaders Schlumberger's SLB and Halliburton's HAL North American margins are at 24%, while Weatherford's WFT lag the group at 20%. Baker Hughes' international operations have been its main challenge in recent years. The company has routinely turned in operating margins far lower than peers' because of a poor cost structure and a weak product line. In our view, the fourth-quarter results, where international operating margins increased 375 basis points sequentially, were a very positive step. The company is now well on its way to achieving its goal of double-digit margins across all of its international markets by the end of 2011, with Latin America, Europe, and the Middle East regions already at 9%, 8%, and 10%, respectively. The firm appears to be making real gains in improving its international cost structure, which should make it far more competitive price-wise on some of the more high-profile tenders. Baker Hughes also indicated that international p ricing appears to have bottomed in some product lines, and meaningful pricing leverage could start to take place in late 2011. Overall, we think Baker Hughes is well on its way to delivering very healthy 2011 results. |
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