In This Article:
It would appear that, based on its most recent earnings results, oil services company Baker Hughes, a GE Company (NYSE: BHGE) has finally turned a corner. After more than a year of integrating two disparate businesses into a one-stop shop for oilfield equipment and services, the company is starting to see business pick up with considerable gains in revenue and orders.
By the numbers
| Metric | Q4 2018 | Q3 2018 | Q4 2017 |
|---|---|---|---|
| Revenue | $6.26 billion | $5.66 billion | $5.80 billion |
| Operating income | $382 million | $282 million | ($111 million) |
| EPS (diluted) | $0.28 | $0.03 | $0.07 |
| Free cash flow | $876 million | $146 million | ($367 million) |
DATA SOURCE: BHGE EARNINGS RELEASE. EPS = EARNINGS PER SHARE.
This past quarter was where things really started to come together for Baker Hughes. Even though oil service activity for shale in North America was weak this past quarter, the company has a much smaller presence in this part of the business than its larger peers Halliburton and Schlumberger. Hence the gains in revenue and earnings when its peers were posting weaker earnings results.
The real shining star of the quarter was the turbomachinery and process solutions (TPS) segment. This has been a key business segment for the company, as it anticipates significant growth in the liquefied natural gas business. Not only were revenue and operating income up significantly, but management also noted that it booked $2.12 billion in orders for the quarter, up 23% year over year and representing a book-to-bill ratio of 1.19. Any number greater than one means the company is taking more orders than it's fulfilling; this means we can expect growth in the near future.
Data source: Baker Hughes. Chart by author.
Another promising note was that the company's oilfield equipment orders more than doubled in the most recent quarter to $1.04 billion. Management noted on its conference call that orders for subsea equipment and other offshore-related equipment orders were one of the most significant factors in the order increase. The thing that makes these announcements so important is that these two segments were a real drag on the prior quarter's earnings.
The one place that Baker Hughes still lags behind, though, is margin. Operating margin for the quarter was 6.1%, or 7.9% if you exclude restructuring and merger-related costs. That's certainly an improvement, but still well below the results its peers are producing.
Image source: Getty Images.
What management had to say
Even though General Electric had technically merged its oil and gas equipment business with Baker Hughes and only had an equity stake in the combined entity, there were still lots of connections between the two companies in terms of product manufacturing and licensing. It wasn't much of an issue when GE was the majority shareholder, but now GE plans to sell most of its stake in the business.