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Let’s take a closer look at Halliburton’s 1Q14 earnings comments

Ingrid Pan

Why the Big 3 oilfield service companies are bullish on 2014 (Part 5 of 9)

(Continued from Part 4)

2014 outlook

Halliburton expects customer spending levels to increase by the “upper single digits” for oilfield services worldwide and its own company revenue growth to be in the “low double digits.” In total, EPS (earnings per share) are expected to grow 25% from 1Q14 to 2Q14 and should continue to grow thereafter. HAL also expects corporate expenses in 2Q14 to be $95 million to $100 million, a 2014 effective tax rate of 28% to 29%, a 2Q14 share count of 850 million, and 2014 capex of $3 billion.

Eastern hemisphere remains strong while Latin America still lags

Eastern hemisphere activity (Asia, the Middle East, and Africa) remains a growth driver. Saudi Arabia has been a key growth driver, with 50% revenue growth in 1Q14 versus 1Q13.

Eastern hemisphere revenue is expected to grow in a “low double-digit percentage” in 2Q14 versus 1Q14, off of 1Q’s seasonal lows. Margins are expected to be in the mid-teens in 2Q14, with growth through the year to average in the upper teens for FY2014.

Latin America’s activities are expected to be flat with 2013, driven by lagging Brazil and Mexico operations.

HAL expects Brazil to continue to lag but Mexico’s activity to ramp up with major projects starting later this year. High single-digit percentage revenue growth is expected in 2Q14, with modestly higher margins driven by lower Brazil activity and mobilization costs in Mexico. A “more meaningful” increase in revenues and margins is expected in 2H14 for FY revenue and margins close to last year.

North American pressure pumping recovery

Management feels a “momentum swing” in North America, as excess pressure pumping (fracking) capacity has dampened profitability for oilfield service companies there over the past few years—particularly HAL, which has the largest exposure to NA pressure pumping of the Big Three. HAL’s language on the call was extremely bullish, with the CEO stating, “I am more excited about North America now than I have been since late 2011.” Management notes that sentiment is supported by confidence from customers in their business prospects, supportive commodity prices resulting in healthy cash flow (and therefore more spending on capex) for upstream energy companies, and rising “completions intensity” (which means that bigger and more complex wells are being drilled, which cost more money, which translates into more revenue for service companies).

HAL expects to benefit from these trends to see North American margins rebound to 2H13 levels in 2Q14, with margins nearing 20% before year-end 2014.

In this series, we discuss the 1Q14 earnings of Baker Hughes (BHI), Schlumberger (SLB), and Halliburton (HAL), which are all significant components of the Market Vectors Oil Services ETF (OIH) and the Energy Select SPDR ETF (XLE).

Continue to the next part of this series to see what Baker Hughes said about its 1Q14 earnings.

Continue to Part 6

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