Baker Hughes’ revenue rose 1% to $7.0bn in the third quarter. This comes as double-digit growth in the Industrial & Energy Technology (IET) division was just enough to offset declines in Oilfield Services & Equipment (OFSE).
Underlying cash profits (EBITDA) rose 2% to $1.2bn, in line with the revenue trend, as growth in IET helped offset declines in OFSE.
Free cash flow fell by 7% to $0.7bn, driven by a reduction in cash generated from operations. Net debt was $3.4bn at period-end.
Total orders in the quarter rose 23% to $8.2bn, taking the order book up to $35.3bn.
The shares were broadly flat in after-hours trading.
Our view
Baker Hughes’ third-quarter results were mixed, but the group still managed to squeeze out modest profit growth. The period also saw Baker strike a deal worth around $13.6bn to acquire Chart Industries, which has since been approved by shareholders and is set to complete by mid-2026.
At first glance, the deal makes sound strategic sense. It’s a complementary fit that expands the group’s capabilities in areas of the energy market with attractive growth credentials. Management is confident that shareholders will see a good return on their investment, but as with all acquisitions, there’s an element of execution risk.
Back to existing operations and Baker’s Oilfield Services & Equipment division is still struggling to grow. But the breadth of Baker Hughes’ technology offering across the energy landscape leaves it better positioned than many in the sector to prosper in a rapidly evolving energy market.
Sales, profits and order metrics in the all-important Industrial & Energy Technology (IET) division continue to hold up well, with the division’s order book reaching a record high. So we’re pleased to see acquisition activity focus on this side of the business.
Momentum in IET is supported by a healthy demand for liquefied natural gas (LNG) where capacity is set to increase by about 60% by the end of the decade, due to its place as a key transition fuel and role in improving energy security.
Despite some weakness earlier in the year, the long-term growth drivers for gas technology remain in good shape, and Baker Hughes is a frontrunner to pick up new projects in this space. Improved intake in future-facing products such as New Energy and power generators for data centres are also helping to fuel growth expectations.
There’s no assurance that an economic slowdown won't weigh on development activity amongst IET customers. But the group's order book has grown to $35bn. That revenue visibility, as well as continuing improvements in efficiency, can help deal with short-term lulls in commercial activity.
The group boasts a robust balance sheet and impressive cash flows. That helps support a prospective dividend yield of 2.0%. But future shareholder returns can’t be guaranteed, and share buybacks appear to be getting reigned back in light of the acquisition of Chart Industries.
Baker Hughes’ attractive business mix is reflected by a valuation towards the top of the peer group. It’s well deserved in our opinion, but means the shares are likely to be sensitive to any weakness in order intake and changes in the macroeconomic outlook.
Environmental, social and governance (ESG) risk
The ESG risk to oil and gas service providers runs parallel to those impacting producers. Environmental concerns are the primary driver of ESG risk for this group, with carbon emissions and waste disposal being the main issues. Health and safety, community relations and ethical governance are also contributors to ESG risk.
According to Sustainalytics, Baker Hughes's management of material ESG issues is strong, as are its ESG reporting practices. Based on available evidence, a part of executive remuneration is explicitly linked to sustainability performance targets. Similarly, the environmental policy is very strong. The company also has a strong whistleblower programme in place. It does not appear to be implicated in any significant controversies. It has a stated goal of reducing scope 1 and 2 emissions by 50% by 2030, and an overall reduction in scope 3 by 2033, although emissions from the products it sells, which account for almost all of its emissions have been moving in the wrong direction.
Baker Hughes key facts
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