Halliburton’s Earnings Growth Unable To Impress The Market; Plans To Increase Pricing To Further Enhance Margins
Halliburton (NYSE:HAL), the world’s third largest oilfield services company, posted a stellar financial performance for the September quarter 2017 on 23th October 2017, beating the market estimate for both revenue as well as earnings by a fair margin((Halliburton Announces September Quarter 2017 Results, 23rd October 2017, www.halliburton.com)). The company reported revenues of $5.44 billion in the quarter driven by the strong drilling demand and pricing in the North American onshore markets, while its adjusted earnings grew sharply to 42 cents from merely 1 cent in the same quarter of last year. Despite this, the market appeared disappointed with the growth in the company’s margins, causing the stock to drop 2.2% during the day. Halliburton’s management acknowledged the slower growth in its margins and pointed out the corrective measures that it plans to undertake to normalize its profits going forward.
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Key Highlights of 3Q’17 Earnings Release
- Halliburton’s 3Q’17 revenue growth was driven by the utilization and pricing improvements in the North American onshore markets and the resilience displayed by some of the international markets. The company’s North American revenue increased 14%, despite the slight drop in the US rig count due to the hurricanes that hit the US Gulf Coast during the quarter.
- The company witnessed an uptick in its drilling activity in Latin America, particularly Argentina, Brazil, and Mexico. The European markets also rose due to higher utilization in the North Sea and improving drilling demand in Russia and Nigeria. However, the Middle East continues to be Halliburton’s most active international market due to the focus on mature fields.
- On the cost side, Halliburton faced increased costs due to the unavailability of diesel fuel, and supply chain disruptions, caused by the hurricanes in the US, which negatively affected the company’s margins for the quarter. However, going forward, the company plans to increase its pricing, improve its equipment utilization, and structurally reduce its operating costs to normalize its margins.
- During the quarter, Halliburton completed the acquisition of Summit ESP, which is likely to make the company the second largest Electric Submersible Pump (ESP) provider in North America.
Guidance
- Despite the modest recovery in commodity prices in the first half of the year, Halliburton expects commodity prices to remain in a range-bound environment in the near to medium term.
- For its North American operations, the company expects to see a moderate growth in the fourth quarter due to the onset of the holiday season and lower efficiency levels due to winter months mainly in the Rockies and Northern US.
- Further, Halliburton anticipates the seasonal rise in the year-end product and software sales in the international markets to be lower this year, as most of its customers are budget constrained. Thus, the company is likely to witness lower activity and pricing pressure in the international markets in the fourth quarter.
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