Service & Supply | Quarterly / Earnings Reports | Oilfield Services | Third Quarter (3Q) Update

Canadian Ops Bolster Baker Hughes' 3Q Revenues

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Baker Hughes Incorporated reported results for the third quarter of 2014 are as follows:

Adjusted net income for the third quarter of 2014 excludes $14 million in before and after-tax charges ($0.03 per diluted share) relating to the impairment of a technology investment and $58 million before and after-tax costs ($0.13 per diluted share) associated with a restructuring of operations in North Africa, resulting primarily from recent disruptions in Libya.

Concurrent with the restructuring of this business, certain North African entities previously reported in the Middle East/Asia Pacific segment are now reported within the Europe/Africa/Russia Caspian business; accordingly, the historical financial results of these two segments have been revised to reflect this change.

Martin Craighead, Baker Hughes Chairman and Chief Executive Officer commented, "Our third quarter results included record revenue, record free cash flow, and more than a 10% sequential increase in adjusted earnings. We achieved these results despite several geopolitical events in the Eastern Hemisphere and a sharp reduction of activity in the Gulf of Mexico which caused margins to fall short of our expectations. Our outlook for the near term remains positive based on increasingly favorable market conditions in our North American business and recent actions to increase profitability internationally.

"Latin America delivered increased revenue and margins primarily from Argentina and offshore Mexico. In the Eastern Hemisphere, protracted disruptions in Libya and Iraq, along with a sharp decline in the value of the Russian Ruble, contributed to reduced revenue and margins. In the quarter, we restructured our North African operations and completed the demobilization of a major contract in Iraq.

"In North America, revenue growth was driven by a significant increase in service intensity in our pressure pumping product line and the seasonal rebound of our Canadian business. At the same time, activity delays our customers are experiencing in the Gulf of Mexico caused North American margins to remain unchanged.

"For the fourth quarter, our North American segment is expected to deliver increased revenue and margins as activity levels return to normal in the Gulf of Mexico and profitability continues to improve in our pressure pumping business. Internationally, we project increased revenue and margins due to the seasonal uplift in year-end product sales along with recent contract wins in Latin America, and actions taken to improve efficiencies in the Eastern Hemisphere."

Free cash flow for the third quarter was $725 million and a record for Baker Hughes. Additionally, 2.9 million shares of Baker Hughes stock were repurchased on the open market, totaling $200 million. This leaves $1.05 billion remaining under the previously announced authorization to repurchase shares.

Total dividend payments were $74 million in the third quarter of 2014, reflecting the previously announced 13% increase in the quarterly cash dividend.

The effective tax rate on adjusted net income, which excludes the charges for the business restructure in North Africa and the impairment of a technology investment with no tax benefits, was 34.6%.  Including these charges, the effective tax rate on net income for the third quarter of 2014 was 38.7%.

Capital expenditures were $425 million in the third quarter of 2014 and less than depreciation and amortization expense of $455 million.

Adjusted EBITDA (a non-GAAP measure) in the third quarter of 2014 was a record high of $1,188 million, an increase of $29 million, or 3%, compared to the second quarter of 2014 and an increase of $170 million compared to the third quarter of 2013.  A reconciliation of net income attributable to Baker Hughes to adjusted EBITDA is provided in Table 2.  Supplemental financial information for revenue and adjusted operating profit before tax (a non-GAAP measure) is provided in Tables 5a and 5b. Free cash flow is defined as net cash flow from operating activities less disbursements for capital expenditures plus proceeds from disposal of assets.