Halliburton Reports Depressed 2Q’16 Earnings Due To Persistently Low Drilling Demand
Halliburton (NYSE:HAL), the world’s second largest oilfield services company, reported a sharp drop in its June quarter 2016 revenue as well as earnings, because of continued sluggish drilling demand and pricing headwinds globally. [1] While the crude oil prices improved over 35% in the last three months, the exploration and drilling demand continued to remain weak throughout the quarter. Thus, although the Houston-based company exceeded the consensus expectations for the quarter, its revenue and profitability took a severe hit because of the reduced drilling activity throughout the industry.
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The North American markets continued to be the weak link in the company’s profits, recording an operating loss of $124 million, as opposed to a profit of $130 million in the same quarter last year. International markets also saw a drop in their profitability, but were more resilient than the North American markets. The company’s management believes that the commodity markets have bottomed out and expects the US rig count to improve in the second half of the year and beyond. Consequently, the North American markets are anticipated to start recovering from the third quarter of 2016.
Halliburton recognized a special charge of $3.5 billion in the second quarter, pertaining to the termination fees paid to Baker Hughes due to the failure to close that transaction. However, the company aims to bring down its operational cost by $1 billion by the end of the year and is on track to achieve this goal. This, coupled with the expected recovery in the North American markets, is likely to improve Halliburton’s operating margins in the September quarter.
Further, the oilfield contractor has a long-term debt worth $600 million due in the second half of the year. The company plans to use its cash flows to repay this obligation. Halliburton had a cash balance of $3.1 billion at the end of the second quarter, which should be sufficient to meet its repayment requirements. Finally, amid the downturn in the commodity markets, the company also declared a quarterly dividend of 18 cents per share to its stockholders. This indicates that the company is confident about its ability to return value to its shareholders even in the current weak oil price environment.
Have more questions about Halliburton (NYSE:HAL)? See the links below:
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Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Halliburton Company
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Notes:- Halliburton Announces Second Quarter 2016 Results, 20th July 2016, www.halliburton.com [↩]