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Why Is Halliburton (HAL) Down 20.1% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Halliburton (HAL). Shares have lost about 20.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Halliburton due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Halliburton Q2 Earnings Beat, Sales Miss Estimates

Halliburton reported higher-than-expected second quarter profit on robust international activity. The oilfield services major saw its adjusted net income (excluding impairments and other charges) come in at 35 cents per share, outperforming the Zacks Consensus Estimate of 30 cents.

However, the bottom line was below the adjusted earnings of 58 cents in the year-earlier quarter on weakness in the North American market. Operating income reported by Halliburton was $303 million, well below the $789 million for the same period last year.

Meanwhile, revenues of $5.9 billion were 3.5% lower than the year-ago quarter and missed the Zacks Consensus Estimate by a marginal 0.6%. North American revenue fell 13.2% year over year to $3.3 billion. Revenue from Halliburton’s international operations rose 12.5% from the year-ago period to $2.6 billion, an area that continues to exhibit growth momentum.

Management’s Outlook

The world’s biggest provider of hydraulic fracking noted that United States land activity levels in the second quarter improved sequentially, particularly in the pressure pumping business, while drilling and artificial lift activity picked up too. Halliburton did encounter lower pressure pumping activity in Canada and a fall in drilling fluid activity in the Gulf of Mexico but the company continues to successfully ride the changing market dynamics through excellent execution and management of the controllable factors.

Meanwhile, Halliburton is witnessing broad-based, steady recovery in its international business. The company anticipates its international revenue to grow at a high single-digit rate in 2019, with further improvement next year. Importantly, Halliburton believes it has got the scale and required technology portfolio to take advantage of this growth trend.

Segmental Performance

Operating income from the Completion and Production segment was $470 million, 29.7% below the year-ago level of $669 million. The division’s performance was affected by decline in Latin America stimulation services.

However, the segment operating income bettered our consensus estimate of $430 million. The outperformance was largely the result of strong domestic artificial lift activity, increased cementing job and completion tool sales outside North America, higher stimulation activity in North America and Middle East/Asia, and increased pipeline services throughout Europe/Africa/CIS.

Meanwhile, Drilling and Evaluation unit profit fell from $191 million in the second quarter of 2018 to $145 million in the corresponding period of 2019. The segment income was also below the Zacks Consensus Estimate of $148 million.

The underperformance was on account of lower drilling fluids activity in Latin America and North America, together with decline in software sales. These setbacks were partly offset by stronger project management activity in Middle East/Asia, improved wireline activity globally and increase in North America, Latin America and Europe/Africa/CIS drilling activity.  

Balance Sheet

Halliburton’s capital expenditure in the second quarter was $408 million. As of Jun 30, 2019, the Zacks Rank #4 (Sell) company had approximately $1.2 billion in cash/cash equivalents and $10.3 billion in long-term debt, representing a debt-to-capitalization ratio of 52%.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Halliburton has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Halliburton has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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