Halliburton Co. (HAL, Financial), a major oilfield services company, said second-quarter revenues increased 7% from the prior quarter, driven by strong growth in the U.S. Despite this, net earnings of 58 cents per share missed consensus estimates by 1 cent on expected capacity issues at the Permian Basin.
Company accelerates growth in North American markets
Houston-based Halliburton reported revenue of $6.1 billion and operating income of $789 million for the quarter ending June 30, up 7% and 27% from respective figures from the March quarter.
CEO Jeff Miller said revenues in the North American region, the company’s “largest and fastest growing energy market in the world,” increased 9% from the prior quarter driven on several factors, including a 16% increase in the U.S. land rig count and higher drilling activity in the U.S. Miller said on the call that U.S. profit margins are “closing in on margins” from 2014, when the price of crude oil was near a five-year high.
Company lowers earnings guidance on Permian Basin capacity issues
Although the company reported strong revenue growth for the quarter, Halliburton mentioned several challenges, including cost inflation for trucks and higher maintenance costs. Miller said on the call that the company expects “temporarily constrained activity” at the Permian basin for the balance of the year even though customers might react to the constraints differently: either the customers will relocate to other basins or the customers will simply reduce activity at the Permian. In light of these challenges, management lowered third-quarter earnings guidance by approximately 10 cents.
GuruFocus ranks Halliburton’s profitability 4 out of 10 and lists three severe warning signs: declining revenues, contracting gross margins and low operating margins. Additionally, the company’s return on equity underperforms 56% of global competitors, which include Schlumberger Ltd. (SLB, Financial) and General Electric Co. (GE, Financial) subsidiary Baker Hughes, a GE Co. (BHGE, Financial).
At 11:30 a.m., Halliburton’s share price traded over 7% lower from its previous close of $45.20 on the lower earnings guidance. Despite this, the company’s price-sales ratio is near a two-year low of 1.78.
During the quarter, Ken Fisher (Trades, Portfolio) added 53,522 shares of Halliburton for an average price of $49.80.
Disclosure: no positions.
