10-QPeriod: Q3 FY2017

Baker Hughes Co Quarterly Report for Q3 Ended Sep 30, 2017

Filed October 31, 2017For Securities:BKR

Summary

Baker Hughes, a GE Company (BHGE) reported its first quarterly results following the significant business combination with GE's Oil & Gas (GE O&G) segment, which closed on July 3, 2017. For the third quarter of 2017, the company experienced a notable increase in revenue to $5.4 billion, up from $3.0 billion in the prior year, largely due to the consolidation of the acquired GE O&G business. However, the company reported a net loss of $273 million for the quarter, a significant shift from a net income of $91 million in Q3 2016. This loss was heavily influenced by substantial merger and related costs ($159 million) and restructuring and impairment charges ($191 million) associated with integrating the two businesses. Despite the quarterly loss, the underlying operational performance shows mixed signals. The Oilfield Services segment saw a significant revenue increase driven by the acquisition, while Oilfield Equipment experienced a revenue decline due to activity reductions. The company's outlook points to continued, albeit slowing, growth in North America onshore activity and cautious optimism for international markets, while offshore projects remain fluid due to oil price volatility. Investors should closely monitor the integration progress, the realization of synergies, and the company's ability to return to profitability amidst ongoing industry challenges and restructuring efforts.

Financial Highlights

46 data points
Beta

Revenue

$5.38B

17.7% Gross Margin

Net Income

-$134.00M

-2.5% Net Margin

EPS (Diluted)

$-0.31

Total Assets

$54.81B

Cash & Equivalents

$4.78B

Free Cash Flow

-$196.00M

Financial Statements
Beta
Revenue$5.38B
Cost of Revenue$2.59B
Gross Profit$952.00M
R&D Expenses$162.00M
SG&A Expenses$795.00M
Operating Expenses$5.49B
Operating Income-$193.00M
Net Income-$134.00M
EPS (Basic)$-0.31
EPS (Diluted)$-0.31

Key Highlights

  • 1Revenue increased by 78% to $5.4 billion in Q3 2017, primarily driven by the acquisition of GE O&G assets.
  • 2Reported a net loss of $273 million in Q3 2017, compared to a net income of $91 million in Q3 2016, impacted by significant merger and restructuring costs.
  • 3Merger and related costs amounted to $159 million, and restructuring, impairment, and other charges were $191 million in Q3 2017.
  • 4Oilfield Services segment revenue grew substantially due to the acquisition, while Oilfield Equipment revenue declined.
  • 5North America rig counts saw a significant increase of 92% year-over-year, indicating improved drilling activity.
  • 6The company ended the quarter with $4.8 billion in cash and equivalents, a substantial increase from $981 million at the end of 2016, bolstered by GE's contribution.
  • 7Despite integration costs leading to a quarterly loss, the company aims for future profitability by managing costs and adapting to market conditions.

Frequently Asked Questions

The combination with GE O&G, which closed on July 3, 2017, significantly boosted Baker Hughes' revenue, which more than doubled to $5.4 billion in Q3 2017 compared to $3.0 billion in Q3 2016. However, the integration process also led to substantial merger and related costs and restructuring charges, resulting in a net loss of $273 million for the quarter, compared to a profit in the prior year.

The Oilfield Services segment saw a significant revenue increase driven by the acquisition. The Turbomachinery & Process Solutions and Digital Solutions segments also experienced revenue growth. However, the Oilfield Equipment segment saw a revenue decrease due to reduced activity and price deterioration.

Baker Hughes anticipates continued, though slower, growth in North America onshore activity. International onshore activity is expected to grow moderately, but with uncertainty. Offshore projects are expected to remain fluid due to oil price volatility, and major customer capital expenditures are anticipated to be delayed. The company views the long-term economics of the LNG industry as positive but expects the market to remain oversupplied for several years.

Baker Hughes ended the quarter with a significantly improved cash position, holding $4.8 billion in cash and equivalents, up from $981 million at the end of 2016. This increase is partly due to a $7.4 billion contribution from GE. The company believes its current cash on hand, operating cash flows, and a $3 billion revolving credit facility provide sufficient liquidity to meet its obligations and fund future strategies.