It hasn't been a top-notch earnings season for the
oilfield services sector.
Halliburton (NYSE: HAL), the second largest
participant in the group, led off with mediocre results, but
did
manage to beatexpectations. It
was followedby
Weatherford (NYSE: WFT) which also didn't set
the world on fire, and
Schlumberger (NYSE: SLB), which
took a tumble.
And now
Baker Hughes (NYSE: BHI) has told us about
its quarter, which turned out to be unimpressive enough to
have Mr. Market drop the company's shares by nearly 6% on
Wednesday. For the quarter, the company generated net income
$55 million, or $0.18 per share, a major slide from last
year's $429 million, or $1.39 per share.
As you probably know, Baker Hughes is in the
process of acquiringits fellow oilfield service company
BJ Services (NYSE: BJS). The $5.5 billion
transaction, which could close as early as the end of 2009,
will represent a 16.3% premium for BJ Services
shareholders.
But let's return to Baker Hughes' most recent quarter.
With the company in the midst of transforming its emphasis to
a geographic orientation, rather than a product line
concentration, it was forced to deal with extra costs to
insure the smoothness of what really is a major change.
According to the
company's CEOChad Deaton, North America margins rebounded
from second-quarter lows. And as he also noted, "Aggressive
cost cutting in the first half of 2009 enabled us to absorb
additional price decreases and improve profitability on
modest activity increases."
And then there was the international picture which, as
Deaton observed, produced results that "were disappointing
with revenue less than expected and price discounting greater
than expected." In fact, of the four regions that the company
now recognizes, all but our own continent saw revenue
declines both year on year and sequentially. However Deaton
also said that "internationally, we believe that customer
spending reached its low point this quarter," so things
should be looking up from here.
But Baker Hughes isn't alone. Even the king of the
deepwater drillers,
Transocean (NYSE: RIG) recorded
lower-than-expected results -- although its sidekick
Diamond Offshore (NYSE: DO), produced
a solid quarter.
As to Baker Hughes, my advice to my Foolish friends is to
give the company a wide berth until its BJ purchase is
completed and oilfield services in general return to
favor.
Baker Hughes has been rated a five-star company by
Motley Fool's
CAPSplayers. I suggest that you check out the
company's CAPS
pageand add your opinion.
This article was originally published as
Do You Really Want to Buy Oilfield Services?on
Fool.com
Copyright © 2009 The Motley Fool, LLC. All rights
reserved.
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