Baker Hughes’ second-quarter revenue fell 3% to $6.9bn, coming in ahead of analyst estimates of $6.6bn. A double-digit decline in Oilfield Services & Equipment sales (OFSE) was only partially offset by an increase in Industrial & Energy Technology (IET).
Despite the dip in revenue, underlying cash profit (EBITDA) grew 7% to $1.2bn, reflecting cost-savings and other productivity gains.
Free cash flow increased from $106mn to $239mn, helped by the improved profitability and favourable timing of receipts and payments. Baker Hughes ended the period with net debt of $2.9bn. $423mn was returned to shareholders through a combination of dividends and buybacks.
Having previously suspended group guidance due to tariff uncertainty, the company now expects full-year revenue of $26.5bn-$27.7bn, and underlying EBITDA of $4.45bn-$4.90bn. The mid-point of guidance suggests a 2.5% fall in revenue and 1.8% improvement in underlying cash profit.
The shares rose 1.6% in after-hours trading.
Our view
Baker Hughes has now had time to assess the initial impact of tariffs on its business. Guidance has softened a little compared to the outlook given alongside 2024’s results, but the refreshed steer after the second quarter suggests some potential upside compared to market forecasts.
With oil prices lagging those seen last year, it’s little surprise that Oilfield Services & Equipment sales are down. However, second-quarter numbers for the division showed some progress compared to the first three months of the year. We were also encouraged by contract wins highlighting the breadth of the company’s offering, helping producers to optimise operational performance at their existing fields, as well as decommissioning assets at the end of their life.
We think Baker Hughes is better positioned than many in the sector to prosper in these turbulent times. 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.
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.
Order intake for gas technology took a notable step downwards in the second quarter but the long-term growth drivers remain in good shape. Baker Hughes is a frontrunner to pick up new projects in this space. Meanwhile, recent weakness seen in gas technology orders has been offset by improved intake in future-facing products such as New Energy and power generators for data centres.
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 $34bn. That revenue visibility as well as continuing improvements in efficiency can help deal with short-term lulls in commercial activity. This makes it less exposed to energy price fluctuations than oil & gas producers, but it would still feel the impact if prices were weak for a prolonged period.
The group boasts a robust balance sheet and impressive cash flows. That helps support share buybacks and a prospective dividend yield of 2.4%. But future shareholder returns can’t be guaranteed.
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 sustained 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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