As oil prices fall and the energy market becomes slow and sluggish, oil field Services Company Halliburton Company (HAL, Financial) announced a fall in earnings and revenue in the first-quarter earnings report, announced on Monday. The Houston-based company made a net income from continuing operations of $418 million in the first quarter of 2015. This figure is down from $623 million from the same quarter last year. Adjusted operating income for Q1 2015 was $699 million as compared to adjusted profit for the same period in 2014, which was $970 million.
“Total company revenue of $7.1 billion for the first quarter was down 4% year over year, significantly outpacing a 19% global rig count decline, and represented industry-leading performance amidst a challenging commodity price environment. Our global customer base has responded by lowering activity levels and seeking price concessions, which has impacted our margins. As evident by the restructuring charges taken during the quarter, we are taking steps to help mitigate the ongoing impact,” said Dave Lesar, chairman and chief executive officer, said in a statement.
Analysts estimated adjusted earnings per diluted share to round up at 41 cents, but the company beat estimates with adjusted earnings of 49 cents per share. The company recorded post-tax companywide charges of $823 million or 97 cents per diluted share, due to asset write-offs, underwriting inventory, severance costs and other charges.
Cost-cutting measures
The company is struggling to maintain operations in the face of a 21% drop in the oil price from last year. China and other big oil-importing companies are moving away from importing more oil while shale gas production is catching on in the United States. Add to this oil price settling at about $60 a barrel, and the commodities sector is seen struggling to control mounting losses and rising charges.
Halliburton has cut more than 10% of its workforce over the last six months, which translates to 9,000 jobs, Lesar revealed in a conference call to investors Monday. The cuts are an attempt to keep costs down without disrupting the upcoming $34.6 billion cash and stock deal acquisition of rival Baker-Hughes Inc (BHI, Financial). President Jeffery Miller told financial analysts that these operating structure cuts would have been bigger had it not been for the Baker Hughes deal.
“In advance of the pending Baker Hughes acquisition, we have made the decision to preserve our global delivery infrastructure through the downturn, which is having a negative impact on our operating margins but will allow us to realize cost synergies after the close,” said Lesar.
International operations
“North America experienced an unprecedented decline in drilling activity during the first quarter, which drove pricing pressure and margin compression across all product lines. First quarter revenue declined 9% and operating income declined 54% year over year, compared to a 21% reduction in the United States land rig count. Activity has dropped approximately 50% from the peak in late November, and we expect to continue to see pricing pressure for our services until the rig count stabilizes,” warned Lesar. “Our international business has been more resilient than the domestic market, with the international rig count down 9% from the peak last July.”
Customers in the Eastern Hemisphere afforded the oil company a 3% growth in operating income from the region, though revenue remained flat.
“Middle East / Asia revenue and operating income increased by 13% and 33%, respectively, compared to the first quarter of 2014. …Â In Latin America, revenue and operating income increased by 10% and 22%, respectively, compared to the same quarter last year, primarily due to higher activity levels in Venezuela,” said Lesar, “In Europe/Africa/CIS, first quarter revenue and operating income declined 16% and 41%, respectively, on a year-over-year basis.”
Market reactions
Monday trading saw shares up by 2.05% to close at $47.85, while after-hours trade saw a further 0.31% increase to $48. Shares surged by almost 3% in afternoon trading at $48.31. With an EPS of $2.62, the shares yield dividend at 1.5%, with a P/E Ratio of 18.26. Sixteen of 25 analysts polled by Zacks Investment Research give the company’s common stock a ‘Strong buy’ rating.
The stock has fallen by almost 50% in the last year, stabilizing a bit over the last month. Regardless, Halliburton is hopeful of bouncing back. “We believe that the long-term prospects of the industry remain sound. We are excited about the pending Baker Hughes transaction, which will significantly enhance the growth potential of our organization as we combine our highly complementary suites of products and services into a comprehensive offering that will deliver an unsurpassed depth and breadth of solutions to our customers,” concluded Lesar.
