Energy

Halliburton Faces Greater Earnings Reaction Than Rivals

Jon C. Ogg

Published: July 23, 2018 12:00 pm

Last Updated: January 11, 2020 8:35 pm

Halliburton Co. (NYSE: HAL) is weighing on the oil and gas services segment. In fact, this drop comes with two dubious honors. Halliburton appears to be suffering from its worst one-day drop in almost four years, and it was the worst performing S&P 500 stock on Monday. Its stock also is now down double-digits in the percentage calculation so far in 2018.

Halliburton may have met its earnings per share expectations at $0.58 and exceeded revenue expectations with $6.1 billion reported, but the mix of results and the margins are just not coming in where investors want. Also weighing on the company’s land-based operations are some concerns about continued pipeline constraints. What was interesting was that the company’s press release said that the company is achieving outstanding margins and showed growth through most areas.

The fallout from Halliburton looks far worse than that of its peers. Schlumberger Ltd. (NYSE: SLB) shares were down about 1.5% at $66.09, and Baker Hughes, a GE Company (NYSE: BHGE) were up almost 1% on Friday after earnings reports. This news was also preceded last week by a drop in regional rig counts. Texas lost five rigs last week, with a total national drop of eight rigs for the week.

Halliburton also has weighed on the VanEck Vectors Oil Services ETF (NYSE: OIH) with a drop of almost 1.8% to $25.00. The so-called Oil Services ETF has a 52-week trading range of $21.70 to $29.87. This exchange trade fund had roughly $1.5 billion in total net assets as of July 20.

Halliburton’s North America revenue in the second quarter of 2018 was $3.8 billion, a 9% increase sequentially. That domestic growth was said to be driven by its land sector. International revenue, driven by Middle East and Mexico, saw a 4% sequential increase in the second quarter of 2018 of $2.3 billion.

Jeff Miller, president and CEO of Halliburton, said:

We executed on our plan and delivered strong results. We achieved total company revenue of $6.1 billion, representing a 7% increase, while operating income was $789 million, a 27% increase over adjusted operating income for the first quarter of 2018. Our overall strategy is working well and we plan to stay the course. … Our Completion & Production division grew operating income by 34%, primarily driven by the strength of U.S. land. Despite pricing levels that have yet to fully rebound from the recent down cycle, we are achieving outstanding margins.

Halliburton confirmed the fears discussed in the news regarding price and mobility in western Texas and in New Mexico. The prices of oil from the Permian Basin have come at substantial discounts due to a lack of pipeline capacity that can be used to actually get this oil to refineries and closer to its end markets. What is interesting is that Halliburton shares had dropped already as those pipeline constraints have been known.

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After closing at $45.20 on Friday, Halliburton shares were originally expected to open in a range of $42.00 to $44.50. Then shares were indicated to open in a range of $41.00 to $44.00, only to open at $42.60 on Monday morning.

Halliburton shares were last seen trading down 8% at $41.50 Monday morning, in a 52-week range of $38.18 to $57.86 and with a prior consensus analyst target price of $60.77. It probably goes without saying that this consensus target will be coming down over the course of this week.