Barracuda Takes a Bite Out of Halliburton

Halliburton (HAL Quote - Cramer on HAL - Stock Picks) keeps pumping out more big charges.

The giant energy services company, dogged by a problem contract and lingering asbestos exposure, announced Tuesday that second-quarter results will be saddled with nearly $1 billion in new pretax charges. The first charge, taken to cover rising costs and delays for a big project in Brazil, will reduce after-tax earnings by 46 cents a share. The second charge, related to asbestos litigation, will slash quarterly profits by more than three times as much.

Still, Halliburton dwelled on the smaller charge -- caused by mounting problems with its Barracuda-Caratinga pipeline construction in Brazil -- as the more troubling one.

"The Barracuda-Caratinga charge was not anticipated and is disappointing," acknowledged Halliburton CEO Dave Lesar. But "despite these charges, we are getting closer to having both our asbestos liability and the Barracuda-Caratinga project behind us."

Halliburton investors -- by now accustomed to such charges -- felt less than reassured. They pushed the company's stock down 1.8% to $29.95 early Tuesday morning.

Halliburton blamed the Barracuda-Caratinga charge on a "significant reduction in shipyard subcontractor productivity" in Brazil and poor integration of equipment. The company says that project delays will now extend the completion date into periods when "liquidated damages would be incurred." Halliburton is already in the process of trying to resolve other outstanding issues associated with the contract.

Meanwhile, the company's asbestos costs continue to increase. The company said on Tuesday that it must take a $615 million after-tax charge to lower the receivables it expects from asbestos insurance coverage. The company has been trying for years to put its asbestos exposure behind it -- partly by bankrupting affected business units -- and move forward without that lingering weight.

"These insurance settlements, if consummated, will resolve disputes between us and our carriers, forestall further appeals and allow the bankruptcy proceedings to be completed expeditiously," Lesar said. "I am pleased with the progress made on the agreements."

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