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Halliburton Posts Higher-Than-Expected Earnings Yet Again; Banks On North American Recovery For Its Growth In 2017

Maintaining the winning streak of posting an earning surprise over the last eight quarters, Halliburton ( HAL ), the US-based oilfield services company, reported an adjusted earnings of 4 cents for the December quarter of 2016, exceeding the analyst expectations by 3 cents(( Halliburton Announces Fourth Quarter And Full Year 2016 Results , 23rd January 2017, Not only did the company exceed the market estimate for the quarter, but the world's second largest oilfield provider also surpassed the market's annual earnings estimate of an adjusted loss of 5 cents by delivering a loss of only 2 cents for the full year 2016. This earnings overshoot was driven largely by the rebound in commodity prices and the global rig count in the last few months. However, despite the recovery in oil prices and rig count, the Houston-based company missed the consensus revenue expectations for both the quarter and the full year, due to the incessant pricing pressure in the industry. As a result, the company's stock dropped almost 3% on Monday, after the company announced its fourth quarter financial results.


Key Highlights of Halliburton's 4Q'16 Results

Although Halliburton missed the revenue estimate for the quarter by a small margin, the oilfield contractor witnessed a 9% jump in its North American revenue, primarily because of the improvement in the US onshore rig count during the quarter. Further, unlike its peers, Halliburton's international operations displayed resilience through the quarter. The company experienced an uptick in software sales in Venezuela and Mexico, and improved activity in Colombia and Argentina. However, headwinds continued to persist in Latin America, bringing down the company's top-line marginally. Overall, the oilfield provider posted a rise of 4.9% in its December quarter revenue, while its full year revenue continued to remain significantly depressed compared to the previous year.


Data Source: Company filings

On the earnings front, Halliburton made a strong breakthrough by returning to operating profitability in the North American region, after losing money for three consecutive quarters. This bounce back was driven by the company's cost cutting initiatives that yielded cost savings of roughly $1 billion during the year. Besides, the company not only gained market share in North America but also in Latin America, and the Eastern Hemisphere. However, the devaluation of the Egyptian pound weighed heavily on the company's operating income. Thus, Halliburton reported an operating income of only $53 billion for the quarter, which is 40% and 50% lower on an annual and sequential basis respectively.

On the financial side, Halliburton generated cash flows of $1 billion during the quarter, improving the company's cash flow position for the full year. The company used these cash flows to repay its long term obligation of $3.2 billion during the year, bringing down its year-end debt to $12.2 billion. Further, the company made dividend payments of around $620 million, translating into a quarterly dividend of roughly $0.18 per share. However, this was significantly lower compared to the quarterly dividend of $0.50 per share paid by the company's rival, Schlumberger. Apart from this, the oilfield contractor restricted its capital spending for the year to around $800 million, versus $2.2 billion in 2015, which helped the company to conserve its funds.

Going Forward

On the conference call, Halliburton announced that going forward the company will amend its reporting structure to keep it consistent with its closest peer. Further, in line with the optimistic outlook painted by Schlumberger earlier this week, Halliburton also believes that the commodity prices had bottomed out in the June quarter of 2016, and are likely to move upwards in the coming quarters, driven by the rebound in the North American markets. Given the company's large exposure in the region, the company anticipates the recovery in its North American revenue to outperform the growth in the US rig count over the next year.

Moreover, in the coming quarters, the oilfield contractor plans to focus on profitability and returns rather than maintaining its market share by offering pricing concession to its customers. As a result, the company forecasts its margins from the region to witness an improvement of 40%-45% due to the improving demand for drilling equipment and services and better pricing. Contrary to this, Halliburton foresees the international markets to remain soft through the year due to persistently low activity levels and strong pricing pressure. This is likely to weigh on the company's performance during the year. Consequently, the company will continue to be conservative with its capital spending in 2017, and has set a budget of $1 billion for the full year.

Thus, Halliburton continued to surprise its investors in 2016, despite the ups and downs faced by the company through the year. The company has a positive outlook for the forthcoming quarters, and aims to outshine its competitor with its strong presence in the North American markets.


Data Source: Google Finance; US Energy Information Administration ( EIA )

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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