It has been about a month since the last earnings report for Halliburton (HAL). Shares have added about 4% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Halliburton due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Halliburton Q4 Earnings Beat on International Strength
Halliburton reported higher-than-expected fourth quarter profit on robust international activity. This more than offset slowdown in the North American completion services demand that led to pricing pressure in the hydraulic fracturing business.
The world's second-largest oilfield services company after Schlumberger (NYSE:SLB) saw its adjusted income from continuing operations (excluding a tax benefit associated with change in the company’s corporate structure) come in at 41 cents per share, ahead of the Zacks Consensus Estimate of 37 cents.
However, the bottom line was below the adjusted earnings of 53 cents in the year-earlier quarter. Net income reported by Halliburton was $358 million, 22.5% lower than the same period last year.
Meanwhile, revenues of $5.9 billion were approximately flat with the year-ago quarter and scraped past the Zacks Consensus Estimate by a 1%.
Management’s Outlook
The world’s biggest provider of hydraulic fracking noted that for operators in North America, where oil production has reached record levels, it’s more about the returns and not growth. The volatility in the commodity price has convinced explorers and producers to take a relatively conservative approach on capital expenditure programs. Meanwhile, Halliburton is witnessing steady recovery in its international business.
In response to the changing market dynamics, the company is looking to cut down on spending, develop sophisticated technologies and generate strong cash flow from operations.
Segmental Performance
Operating income from the Completion and Production segment was $496 million, 10.5% below the year-ago level of $554 million. The division’s performance was affected by lower stimulation activity and pricing in North America.
However, the segment operating income bettered our consensus estimate of $466 million. The outperformance could be attributed to increased completions activity internationally and higher stimulation activity in Argentina.
Meanwhile, Drilling and Evaluation unit profit fell from $293 million in the fourth quarter of 2017 to $185 million in the corresponding period of 2018. The segment income was also below the Zacks Consensus Estimate of $220 million. The underperformance was on account of lower drilling activity in the Western Hemisphere.
Balance Sheet
Halliburton’s capital expenditure in the fourth quarter was $551 million. As of Dec 31, 2018, the company had approximately $2 billion in cash/cash equivalents and $10.4 billion in long-term debt, representing a debt-to-capitalization ratio of 52.2%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -24.73% due to these changes.
VGM Scores
Currently, Halliburton has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Halliburton has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
Halliburton Company (NYSE:HAL): Free Stock Analysis Report
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