Oil field services giant, Halliburton (HAL, Financial), released its first quarter earnings of the fiscal year 2015 before the markets opened on this Monday and though the top and bottom line beat the Street estimates, the management warned of the decline in drilling activity which has followed the impact of the oil price plunge. In fact, the management has taken a cautious stand for the upcoming quarter as well as the oil prices are still at the lower end forcing the company to cut its activity levels by a considerable extent. Let’s quickly have a look at the number mix that got revealed during the earnings call for gaining further insight.
Both revenue and profit comes under pressure
Revenue came in at $7.1 billion; down from $7.3 billion reported in the year earlier but did beat the Street expectations of $6.89 billion. Such a revenue plunge was chiefly due to low activity levels that is linked to reduction of oil rig counts during the quarter, fierce competition in active oil activity and the huge price concessions provided to customers not eager to spend on drilling and fracking this year as crude-oil price languished in the $50-a-barrel range.
The company also booked a net loss of $643 million, or $0.76 a share, for the first quarter compared to a profit of $622 million, or $0.73 a share, reported a year back. Excluding the special items, earnings stood at $0.49 a share which beat the Street expectations for $0.35 a share, as per Bloomberg.
In fact, the oil company has been feeling the impact of lower crude prices, particularly in the U.S., where shale producers are cutting their operations drastically. In the first quarter North America exhibited an unprecedented decline in drilling activity which created pricing pressure and margin compression across all the product lines. In the first quarter, the company’s revenue declined 9% in the U.S. and operating income went down 54% year-over-year that was comparable to a 21% reduction in the U.S. land rig count during the quarter. In the release, CEO Dave Lesar, noted – “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…”
Company takes resort to cost cutting measures
In the latest earnings report of oilfield services giant, Schlumberger (SLB, Financial), the management has stated that the sudden drop in drilling activity mainly in North America has prompted the company to cut an additional 11,000 jobs.
Halliburton has also cut around 9,000 jobs in the past two quarters and plans to lay off more employees in the coming months. The company’s CEO reiterated during the earnings conference- “Industry prospects will continue to be challenged in the coming quarters, and visibility to the ultimate depth and length of this cycle remains uncertain…” As the macroeconomic situation remains uncertain going forward, the company is eager to control costs further to protect its market position.
The earnings announcement comes just before its Baker Hughes acquisition which the energy company expects would bring in cost synergies and offer better expertise and access to the best oil-drilling technology. Halliburton expects that post this merger, the oil company would see a huge boost in its margins.
In Conclusion
Halliburton is facing tough times but it’s trying hard to generate the best results possible in such a scenario. As the long term prospects of the oil and gas industry remains sound, Halliburton’s financials are expected to improve with time. However, the management expects the active rig count to plunge further until July this year, after which the company might witness rosy times once again.
