North American Recovery Drives Halliburton (HAL) Q1 Earnings

Major oilfield services provider Halliburton Company (NYSE:HAL) reported better-than-expected first quarter profit thanks to improved utilization on the back of growing North American rig count.

Halliburton’s adjusted income per share from continuing operation (excluding special items) came in at 4 cents, a penny above the Zacks Consensus Estimate of 3 cents – the eleventh consecutive quarterly outperformance. However, revenues of $4,279 million missed the Zacks Consensus Estimate of $4,281.4 million amid a difficult international market.

Oil services companies (like Halliburton) – providers of technical products and services to drillers of oil and gas wells – are generally the first of the U.S. energy firms to kick off an earnings season. While the world’s biggest oilfield services company Schlumberger Ltd. (NYSE:SLB) came out with Mar numbers on Friday, Apr 21, the remaining two of the so-called Big Four oilfield service and equipment providers – Baker Hughes Inc. (NYSE:BHI) and Weatherford International plc (NYSE:WFT) – report first quarter earnings over the next few days.

North American Market Continues to Recover

Along the results, Halliburton also sounded optimistic in its view that the North American land market is improving rapidly, driven by increased activity. As it is, rig counts have generally been rising during the last ten months since plunging to an all-time low of 404 in May 2016, with the addition of a flood of new units. As a proof of the recovery, Halliburton grew its domestic land revenue by nearly 30% sequentially

However, the international market recovery is set to start slower, with lower capex spend for the third successive year affecting economics across deepwater and mature field markets. To make things worse, the sluggish recovery and persistent pricing pressure are signs of another challenging year in the offing.

Segmental Performance

Operating income from the Completion and Production segment was $147 million, increasing sharply from the year-ago profit of $30 million and the previous quarter’s income of $85 million, helped by strong pressure pumping activity and the pricing recovery in the U.S. land market.

But Halliburton’s Drilling and Evaluation unit profit dropped big time – from $241 million in the first quarter of 2016 to $122 million this year. The number was also way below the $248 million earned in the Dec quarter, driven by lower contribution from software sales, together with reduced pricing and decreased fluid sales in the Middle East.

Balance Sheet

Halliburton’s capital expenditure in the first quarter was $265 million.

As of Mar 31, 2017, the Zacks Rank #3 (Hold) company had approximately $2,107 million in cash/cash equivalents and $10,812 million in long-term debt, representing a debt-to-capitalization ratio of 54.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stock Performance

Halliburton has seen its shares fall 12.9% year to date after gaining more than 50% for 2016. Nevertheless, the company has managed to outperform the Oil and Gas - Field Services industry across the past six months- and 1-year periods.

Let’s wait and see if the latest earnings beat can help the stock break out of recent sluggishness.

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