Baker Hughes Incorporated's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Baker Hughes Incorporated (BHI)

Q4 2011 Earnings Call

January 24, 2012 8:30 am ET

Executives

Martin Craighead - Chief Executive Officer, President, Chief Operating Officer and Director

Peter A. Ragauss - Chief Financial Officer and Senior Vice President

Adam B. Anderson - Vice President of Investor Relations

Analysts

Joe Hill - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

William A. Herbert - Simmons & Company International, Research Division

Kurt Hallead - RBC Capital Markets, LLC, Research Division

Ole H. Slorer - Morgan Stanley, Research Division

Angeline M. Sedita - UBS Investment Bank, Research Division

John David Anderson - JP Morgan Chase & Co, Research Division

James C. West - Barclays Capital, Research Division

Waqar Syed - Goldman Sachs Group Inc., Research Division

James D. Crandell - Dahlman Rose & Company, LLC, Research Division

Scott Gruber - Sanford C. Bernstein & Co., LLC., Research Division

William Sanchez - Howard Weil Incorporated, Research Division

Brad Handler - Crédit Suisse AG, Research Division

Presentation

Operator

My name is Regina, and I will be your conference facilitator. At this time, I would like to welcome everyone to the Baker Hughes Fourth Quarter 2011 Earnings Conference Call. [Operator Instructions] I would now turn the conference over to Mr. Adam Anderson, Vice President of Investor Relations. Sir, you may proceed.

Adam B. Anderson

Thank you, Regina. Good morning, everybody. Welcome to the Baker Hughes Fourth Quarter 2011 Earnings Conference Call. Here with me today are Martin Craighead, President and CEO; and Peter Ragauss, Senior Vice President and Chief Financial Officer.

Following management's comments, we will open the lines for your questions. Reconciliation of operating profits and non-GAAP measures to GAAP results for historic periods can be found on our website at www.bakerhughes.com in the Investor Relations section under Financial Information.

Finally, I must caution you that any company outlooks discussed this morning are subject to various risk factors. We'll try to highlight these risk factors as we make these forward-looking statements. However, the format of the call prevents a more thorough discussion of these risk factors.

For a full discussion of these risk factors, please refer to our annual report 10-K, 10-Q and, in particular, the forward-looking disclosure in this morning's news release.

With that, I'll conclude our discussion of the administrative details and turn the call over to Peter Ragauss. Peter?

Martin Craighead

Thanks, Adam. Good morning. This morning, we reported adjusted net income for the fourth quarter of $534 million or $1.22 per share. This excludes the previously reported noncash impairment charge of $220 million after tax or $0.50 per share, primarily associated with our decision to minimize the use of the BJ Services tradename as part of our overall branding strategy for Baker Hughes.

On a GAAP basis, net income to Baker Hughes for the fourth quarter was therefore $314 million or $0.72 per diluted share. Revenue for the fourth quarter was $5.4 billion, up 22% or $964 million from last year and up 4% or $209 million sequentially. Adjusted EBITDA for the fourth quarter was $1.2 billion, up 25% from last year and up 3% sequentially.

For the year, adjusted net income was $1.84 billion or $4.20 per share. This excludes certain charges totaling $102 million after tax or $0.23 per share, which are not operational in nature and reconciled in detail in Table 1 of our earnings release. On a GAAP basis, net income to Baker Hughes for the year was therefore $1.74 billion or $3.97 per diluted share.

For the year, revenue was $19.8 billion, up 38% or $5.4 billion from the prior year. Adjusted EBITDA was $4.31 billion, up 64% or up $1.7 billion from the prior year. To help in your understanding on the moving pieces, I'll bridge Q4 last year EPS to this quarter's EPS.

GAAP EPS a year ago was $0.77 per share, add $0.07 for charges incurred last year related to the acquisition of BJ Services, subtract $0.01 for higher net interest expense and net income attributed to noncontrolling interests, add $0.04 for lower income taxes. Operations added $0.35. This results in $1.22 per share for adjusted net income for this quarter. Then subtract $0.50 for the noncash impairment primarily related to the decision to minimize the use of the BJ Services tradename. That brings us to $0.72 per share on a GAAP basis.

Bridging the sequential quarters, GAAP EPS for last quarter was $1.61 per share. Add $0.06 for the early extinguishment of debt, subtract $0.49 for the noncash tax benefit from the reorganization of certain foreign subsidiaries; this brings us to the adjusted $1.18 per share that we discussed in the third quarter. In the current quarter, add $0.02 from lower corporate costs and add $0.02 per share from operations. This results in $1.22 per share for adjusted net income this quarter. Again, subtract $0.50 for the noncash impairment primarily related to the decision to minimize the use of the BJ Services tradename. That brings us to $0.72 per share on a GAAP basis.

In Table 5a of our earnings release, we provide financial information, excluding the $315 million pretax impact of the noncash impairment charge from each of the region's Q4 results provide more meaningful comparisons between quarters. At this point on, on the conference call, any comments on revenue, operating profit and operating profit margin refer explicitly to Table 5a.

Revenue in North America was $2.82 billion, up 28% compared to a year ago and up 4% sequentially. North America operating profit was $527 million, up $49 million year-over-year and down $80 million sequentially. North America operating margin was 19%, down 295 basis points from a year ago and down 367 basis points compared to the last quarter.

The average Q4 North America rig count was 2,481, up 96 rigs or 4% sequentially and up 389 rigs or 19% year-over-year. We continue to see a shift in rigs from gas to oil, with average gas rigs comprising only 42% of the total North America rig count for the fourth quarter 2011. This compares to 54% just a year ago.

Read the rest of this transcript for free on seekingalpha.com

More from Stocks

12 Stocks That Make Up the GLUM Index

12 Stocks That Make Up the GLUM Index

REPLAY: Jim Cramer on Tariff Worries, Oil, Alphabet and Centene

REPLAY: Jim Cramer on Tariff Worries, Oil, Alphabet and Centene

Worth a Stunning $6.6 Trillion, Tech Stocks Have Taken Over the Market

Worth a Stunning $6.6 Trillion, Tech Stocks Have Taken Over the Market

Video: Athens Stock Exchange CEO on What's Next for Greece's Debt Woes

Video: Athens Stock Exchange CEO on What's Next for Greece's Debt Woes

Here's Why Snap Shares Climbed Monday

Here's Why Snap Shares Climbed Monday