Why did Baker Hughes' orders decline so sharply year-over-year?

Total orders fell 22% YoY to $6.7 billion, mainly because Gas Technology Equipment orders dropped 61% YoY to $1.1 billion, after a very large prior-year period. OFSE orders were down 9% YoY, and IET orders were down 34% YoY. Management noted that IET orders remained at or above $2.9 billion for eight consecutive quarters and that the total company book-to-bill ratio was 1.0.

Is Baker Hughes' earnings growth driven by one-time items?

No. The company reported no adjustments to operating income or adjusted EBITDA in Q3 2024, so adjusted and GAAP operating income were both $930 million. GAAP net income did include $99 million of non-operating mark-to-market gains on equity investments, which were excluded from adjusted net income and adjusted EPS.

How much revenue visibility does Baker Hughes have?

Remaining performance obligations were a record $33.4 billion at quarter-end, with IET RPO of $30.2 billion, which is largely concentrated in long-cycle gas technology equipment and multi-decade services agreements. OFSE RPO was $3.2 billion, down 5% sequentially.

What drove margin improvement in the quarter?

Sequential and year-over-year EBITDA gains were driven mainly by higher pricing in both segments and structural cost-out initiatives. Year-over-year, higher IET volume also contributed, partially offset by cost inflation in IET and unfavorable business mix in both segments. OFSE EBITDA margin rose to 19.3% and IET to 17.9%.

How is Baker Hughes returning cash to shareholders?

In Q3 2024, the company returned $361 million to shareholders, including $152 million of share repurchases and about $209 million of dividends paid. The quarterly cash dividend was $0.21 per share, up from $0.20 a year earlier, and cash and equivalents ended the quarter at $2,664 million.

BKR 8-K: Earnings & Results & Regulation FD

01—Abstract

Summary

Summary of the 8-K filed October 22, 2024. Cited figures are marked; the original filing is the authoritative source.

Baker Hughes (BKR) reported third-quarter 2024 results on October 22, 2024, with revenue of $6.9 billion^a (down 3% sequentially, up 4% year-over-year), GAAP diluted EPS of $0.77, and adjusted diluted EPS of $0.67.

Adjusted EBITDA rose 23% year-over-year to $1,208 million^b, and the company stated an EBITDA margin of 17.5%, described as the highest-margin quarter since the company was formed. Management said it remains confident in achieving the midpoint of its full-year EBITDA guidance. Growth in profitability was driven by higher pricing in both segments and structural cost-out, partially offset by lower volume sequentially.

Orders were $6.7 billion^c, down 22% year-over-year, reflecting a sharp decline in Gas Technology Equipment (GTE) orders, down 61% year-over-year. Industrial & Energy Technology (IET) orders of $2.9 billion were still described by management as the eighth consecutive quarter at or above that level, and the total company book-to-bill ratio was 1.0. Remaining performance obligations (RPO) were a record $33.4 billion, including record IET RPO of $30.2 billion, which provides meaningful revenue visibility.

Investors should weigh the strong margin and cash generation against the sharp order decline and the sequential revenue dip. Cash generation was solid, with operating cash flow of $1,010 million^d and free cash flow of $754 million in the quarter. The company returned $361 million to shareholders, including $152 million in share repurchases and dividends.

Oilfield Services & Equipment (OFSE) EBITDA margin improved to 19.3%, while IET EBITDA margin reached 17.9%, both moving toward management's stated 20% target. The filing is a furnished earnings release under Items 2.02 and 7.01, so the information is not deemed filed under the Exchange Act.

02—Key points

Key Highlights

Q3 2024 revenue of $6,908 million, down 3% sequentially and up 4% year-over-year, driven by IET.
GAAP diluted EPS of $0.77 (up 51% YoY) and adjusted diluted EPS of $0.67 (up 59% YoY); no operating income adjustments in Q3.
Adjusted EBITDA of $1,208 million, up 23% YoY, with company EBITDA margin of 17.5%, described as the highest-margin quarter since formation.
Orders of $6,676 million, down 22% YoY, primarily due to a 61% YoY decline in GTE orders; IET orders were $2,868 million.
Record RPO of $33.4 billion, including record IET RPO of $30.2 billion (GTE $11.9 billion, GTS $14.8 billion).
Free cash flow of $754 million on operating cash flow of $1,010 million; $361 million returned to shareholders including $152 million of buybacks.
Management reaffirmed confidence in achieving the midpoint of full-year EBITDA guidance and continued progress toward 20% segment EBITDA margins.

03—Questions

Frequently Asked Questions

Why did Baker Hughes' orders decline so sharply year-over-year?
Total orders fell 22% YoY to $6.7 billion, mainly because Gas Technology Equipment orders dropped 61% YoY to $1.1 billion, after a very large prior-year period. OFSE orders were down 9% YoY, and IET orders were down 34% YoY. Management noted that IET orders remained at or above $2.9 billion for eight consecutive quarters and that the total company book-to-bill ratio was 1.0.
Is Baker Hughes' earnings growth driven by one-time items?
No. The company reported no adjustments to operating income or adjusted EBITDA in Q3 2024, so adjusted and GAAP operating income were both $930 million. GAAP net income did include $99 million of non-operating mark-to-market gains on equity investments, which were excluded from adjusted net income and adjusted EPS.
How much revenue visibility does Baker Hughes have?
Remaining performance obligations were a record $33.4 billion at quarter-end, with IET RPO of $30.2 billion, which is largely concentrated in long-cycle gas technology equipment and multi-decade services agreements. OFSE RPO was $3.2 billion, down 5% sequentially.
What drove margin improvement in the quarter?
Sequential and year-over-year EBITDA gains were driven mainly by higher pricing in both segments and structural cost-out initiatives. Year-over-year, higher IET volume also contributed, partially offset by cost inflation in IET and unfavorable business mix in both segments. OFSE EBITDA margin rose to 19.3% and IET to 17.9%.
How is Baker Hughes returning cash to shareholders?
In Q3 2024, the company returned $361 million to shareholders, including $152 million of share repurchases and about $209 million of dividends paid. The quarterly cash dividend was $0.21 per share, up from $0.20 a year earlier, and cash and equivalents ended the quarter at $2,664 million.

04—Continue

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