Baker Hughes at Howard Weill Conference- Lowers Q1 N. American revenue outlook due to weather; reaffirms 2014 FY outlook
- In North America, poor weather conditions across the US have slowed drilling, leading to an interesting reversal of the wells-per-rig trend; the US rig count is trending up, but the total well count will be relatively flat compared to the fourth quarter. The strong activity in the Permian has been a pleasant surprise and has the potential to keep operations booked up for several months. But for the first quarter, these gains were more than offset by delays in the Rockies and the Northeast.
- As a result North American revenue in the first quarter is projected to be flat versus the fourth quarter. However, because of the continuing improvement in Pressure Pumping cost structure, strong sales in new technologies such as ProductionWave, and an improving mix of business in the Gulf of Mexico, North American margins are expected to improve sequentially, in the range of 100 to 150 basis points.
- Elsewhere, our guidance is relatively unchanged.
- The one new item that will impact international performance is the unfavorable fluctuation in foreign exchange rates. Most significantly, the recent weakness in Russian markets has caused the Ruble to weaken dramatically. The weakening Ruble, along with terrible weather conditions in the North Sea, will have an impact on Europe/Africa/Russia revenue and margins this quarter, and will likely cost two or three cents.
- When we look beyond this quarter, outlook for the full year is unchanged and as bright as ever. In North America, with winter weather behind us, rising US well counts, improving mix in the Gulf of Mexico, and continued strengthening of US Pressure Pumping business, margins are projected to grow several hundred basis points higher, into the mid-teens in the second half of the year.
- In Latin America, will continue to aggressively manage business to reduce risk, improve working capital, and grow margins -- even if it means a temporary freeze on the top line.
- In the Eastern hemisphere, currency fluctuations aside, expect our operating segments to keep pace with the growth in rig counts, led by Middle East/Asia Pacific segment. In this region, we project strong market activity, and with Iraq on the mend, margins should resume an upward trend this year.
- Industrial Services group- See this as an area of growth rather than just the normal steady business.
- Core businesses which include well construction, well production, and Industrial Services will drive strengthening earnings this year.
- In a good position from a cash flow perspective.
- Last year reduced CapEx and focused successfully on reducing cash conversion cycle. The result was record free cash flow. This year is following a similar pattern
- Based on strong free cash flow projections and a positive outlook for the year, share buybacks are expected to continue on a discretionary basis, under current share repurchase authorization.