How Halliburton Beat Estimates (Hint: US Production Is Rising)

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Halliburton Co. (NYSE: HAL) reported second-quarter 2017 results before markets opened Monday morning. The oil and gas services company posted adjusted diluted earnings per share (EPS) of $0.23 on revenues of $4.96 billion. In the same period a year ago, the company reported a net loss per share of $0.14 on revenues of $3.84 billion. Second-quarter results also compare to consensus estimates for EPS of $0.18 and $4.86 billion in revenues.

The company wrote down $262 million associated with an expected promissory note in Venezuela. GAAP operating income, including the charge, totaled $146 million, or EPS of $0.03. Adjusted operating income totaled $408 million in the quarter.

North American revenues rose 24% sequentially in the second quarter. The company attributed the growth primarily to improved pressure pumping utilization and pricing in the United States land market. Revenues rose 9% sequentially in the company’s international operations, but only Latin American operations posted a sequential increase.

President Jeff Miller said:

Overall, I am confident about Halliburton’s ability to grow North America margins, and continue to maintain the run rate for our international business. Our strategy is working well and we intend to stay the course. We will continue to drive superior execution and remain focused on delivering best-in-class returns.

The company did not provide guidance in its earnings release, but third-quarter 2017 consensus estimates call for EPS of $0.33 on revenues of $5.35 billion. For the full year, EPS are forecast at $1.01 on revenues of $20.16 billion.

Unlike the first quarter of this year when analysts kept lowering their earnings estimates, in the second quarter EPS estimates increased by three cents a share over the past 90 days. Halliburton’s well completion and production segment posted operating income of $397 million in the second quarter, compared with an operating profit of $147 million in the first quarter and an operating loss of $32 million in the second quarter of last year.

Operating profits from drilling services dipped from $154 million a year ago to $125 million, slightly better than the $122 million profit in the first quarter of this year.

Basically, all those drilled but uncompleted wells in U.S. shale plays are being brought online, and Halliburton’s 20% year-over-year increase in completion and production revenue and reversal from a loss to a gain in completion and production operating income were the drivers for the company’s solid quarter.

The better news for Halliburton and its peers is that U.S. production is expected to keep rising through this year and next. Provided the production growth doesn’t sink prices, Halliburton is well-positioned to benefit either from more completions or new drilling, or both.

Halliburton’s stock closed at $44.38 on Friday, down about 2.2% for the day. Shares traded up about 3.7% in Monday’s premarket session at $46.00. The stock’s 52-week range is $40.12 to $58.78. The consensus 12-month price target was $57.59 before this morning’s report.