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Baker Hughes (BHGE) Beats on Q2 Earnings, Eyes LNG Growth

Zacks Equity Research

Baker Hughes, a GE company BHGE reported second-quarter 2019 adjusted earnings of 20 cents per share, which beat the Zacks Consensus Estimate by a penny. Moreover, the bottom line rose from the year-ago quarter’s 10 cents.

Revenues totaled $5,994 million, surpassing the Zacks Consensus Estimate of $5,820 million. The figure is also higher than the year-ago quarter’s $5,548 million.

The strong quarterly results were backed by higher order volumes in Subsea Production Systems, Subsea Services and Subsea Drilling Systems businesses. Moreover, increased activities in the Middle East, Asia Pacific and Europe, as well as cost efficiency aided the results.

Baker Hughes, a GE company Price, Consensus and EPS Surprise

Baker Hughes, a GE company Price, Consensus and EPS Surprise

Baker Hughes, a GE company price-consensus-eps-surprise-chart | Baker Hughes, a GE company Quote

Segmental Performance

Revenues from the Oilfield Services unit amounted to $3,263 million, up 13% from the year-ago sales of $2,884 million. Operating income from the business segment came in at $233 million, up from $189 million in second-quarter 2018. The upside was driven by strong growth in the Middle East, Asia Pacific and Europe.

Revenues from the Oilfield Equipment unit totaled $693 million, up 12% from the prior-year quarter’s $617 million. Notably, the segment reported a profit of $14 million against a loss of $12 million in the year-ago quarter. This can be attributed to increased volumes in Subsea Production Systems, Subsea Services and Subsea Drilling Systems businesses.

Revenues from the Turbomachinery & Process Solutions unit rose marginally to $1,405 million from $1,385 million a year ago. Moreover, segmental income increased to $135 million from $113 million in the second quarter of 2018 owing to increase in onshore and offshore production equipment volumes. Moreover, increased revenues in contractual and transactional services boosted the segment.

Revenues from the Digital Solutions segment amounted to $632 million, down 5% from $662 million in the year-ago quarter. Operating profit from the business segment totaled $84 million, down 13% from the year-ago quarter’s $96 million. The segment was affected by lower volumes in Bently and Software businesses. The negatives were partially offset by higher volumes in Measurement & Sensing, and Pipeline & Process Solutions businesses.

Orders

Total orders from all business segments through second-quarter 2019 were $6,554 million, up 9% year over year owing to growth in three of the company’s four segments.

Free Cash Flow

It generated a positive free cash flow of $355 million in the reported quarter, improving from a negative free cash flow of $22 million in the year-ago period.

Capex & Balance Sheet

Baker Hughes’ capital expenditure in the second quarter totaled $238 million.

As of Jun 30, 2019, the company had cash and cash equivalents of approximately $3,138 million, as well as a long-term debt of $7,148 million (including its short-term portion), representing a debt-to-capitalization ratio of 17.1%.

Outlook

The company foresees an improvement in LNG market-related activities. It expects the industry’s 100 million tons per annum of new capacity to reach the final investment decision by 2019-end.

Zacks Rank and Stocks to Consider

Currently, Baker Hughes has a Zacks Rank #3 (Hold). Some better-ranked stocks in the energy sector are given below:

MPLX LP MPLX provides midstream infrastructures to upstream companies. Its bottom line in 2019 is expected to improve 23.6% from a year ago. The company has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

World Fuel Services Corporation INT engages in the distribution of fuel and related products for different industries all over the world. Its bottom line in 2019 is expected to improve 11.9% from a year ago. The company has a Zacks Rank #1.

Delek US Holdings, Inc. DK engages in integrated downstream energy businesses. It beat earnings estimates in three of the trailing four quarters, with an average positive surprise of 59.2%. The company has a Zacks Rank #2 (Buy).

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