SLB Schlumberger Ltd

Baker Hughes Inc. (BHI) reported impressive first quarter 2011 results with a jump in per share profit based on strong international operations.

The company’s earnings came in at 87 cents per share, way ahead of the Zacks Consensus Estimate of 78 cents and more than twice the year-ago quarter’s profit level of 41 cents.

Revenue shot up 78.2% to $4.52 billion in the quarter from the year-earlier level of $2.54 billion. The quarter’s revenue also exceeded the Zacks Consensus Estimate of $4.30 billion.

Segmental Highlights

Of Baker Hughes’ total quarterly revenue, North America, Europe/Africa/Russia/Caspian, Middle East/Asia-Pacific and Latin America accounted for 52%, 17%, 15% and 10%, respectively. The remaining was generated by the Industrial and Others segment.

A strong improvement in before-tax profit was noticed in Latin America during the quarter. Pre-tax margin in this region came in at 13%, compared with 3% in the year-earlier quarter. North America recorded profit before-tax margin of 20% as against 15% in the year-ago quarter, while it was 12% for both Europe/Africa/Russia/Caspian (versus 11% in first quarter 2010) and Middle East/Asia-Pacific (up from 7%). Industrial Services and Other segment’s margin declined to 5% from the prior-year figure of 9%.

Liquidity

At the end of the first quarter, Baker Hughes had $1.39 billion in cash and cash equivalents, while long-term debt (including current portion) stood at $3.54 billion, representing a debt-to-capitalization ratio of 20.6% (down from 21.4% at the end of fourth quarter 2010). The company’s capital expenditures were $429 million during the reported quarter.

Outlook

We believe that Houston, Texas-based Baker Hughesis favorably positioned with a significant improvement in activity levels in both North America and the international regions. The company’s strong portfolio of products and services will help it generate better-than-average results in the domestic market and enable it to further penetrate international markets. The company also has a competitive set of technologies, which allows it to continue deepwater activity in the Gulf of Mexico.

However, we remain cautious about delayed permit for deepwater and shelf drilling in the Gulf region. Furthermore, we believe that the company is still in the growth phase of its international expansion and faces stiff competition from peers such as Schlumberger Ltd. (SLB) and Halliburton Co. (HAL).

We maintain a long-term Neutral rating on the stock.  Baker Hughes currently retains a Zacks #3 Rank (short-term Hold rating).

 
BAKER-HUGHES (BHI): Free Stock Analysis Report
 
HALLIBURTON CO (HAL): Free Stock Analysis Report
 
SCHLUMBERGER LT (SLB): Free Stock Analysis Report
 
Zacks Investment Research