Oilfield services provider Baker Hughes (BHI) said Wednesday that its first quarter loss ballooned to $981 million, or $2.22 per share, but didn't shed light on any progress regarding its $35 billion acquisition by Halliburton (HAL) - Get Report .
"Baker Hughes cannot predict when, or if, the pending merger will be completed," it said.
Taking out pretax expenses and other costs, the Houston company's loss came in at 44 cents per share, more than the 34 cents that analysts on average were predicting.
First quarter sales were $2.67 billion, 21% less than the last quarter, 42% below the same period last year and 7% less than Wall Street expected. North American revenue declined 28% and international sales slid 19% over the fourth quarter.
Jefferies & Co. analyst Brad Handler expects stock reaction to Baker Hughes' earnings to be "modest negative," as its earnings before income tax came in at a negative $189 million versus the Street's expectation $113 million (his estimate was $160 million). His rating on the stock is underperform with a price target of $34.
Baker Hughes' shares rose 2.4% in morning trade trading to $44.15 after rising 1.6% yesterday to close at $45.80.
Chairman and CEO Martin Craighead said in a statement that the industry faced another precipitous decline in activity in the quarter, exceeding even the most pessimistic predictions, as exploration and production companies further cut spending in an effort to protect cash flows, leading the global rig count to drop by 41%.
Craighead said despite the headwinds' severity, decremental operating margins - the degree to which earnings decline with each dollar of sales lost - were contained to 28% over the fourth quarter and to 13% over the same period last year. "Although we have taken significant actions to manage our cost structure during the downturn, we are retaining costs in our operating profit margins in compliance with the merger agreement," he said. "The unique circumstances in which we are operating limit our ability to consider and action a broader range of measures required to align the company with the current and near-term market conditions."
The CEO said the company expects the North American rig count to fall 30% in the second quarter over the first but to stabilize in the second half of the year, although not "meaningfully increase." He also predicts the international rig count will drop steadily through the end of the year "as we see limited new projects in the pipeline."
RBC Capital Markets analyst Kurt Hallead said the company's earnings miss was driven by lower margins in North America, Latin America and Europe/Africa/Russia Caspian. But it reported better than expected results in the Middle East and Asia Pacific markets, where its operating margin was actually a positive 6.8%, versus a negative 21.2% in North America, a negative 3.1% in Europe/Africa/Russia Caspian and a negative 23.8% in Latin America.
Halliburton announced this past Friday that it was delaying its earnings release on Monday until May 3 because of the deal's April 30 deadline, after which time the two companies may continue to seek regulatory approvals or cancel the deal. Analysts at the time said the move portended either a deal break or a stall tactic to finalize divestitures that would appease regulators.
Earlier this month the Department of Justice filed a civil antitrust lawsuit in the U.S. District Court in Delaware seeking to the block the purchase, claiming that it threatens to eliminate competition, raise prices and reduce innovation in the oilfield services sector.