Baker Hughes Incorporated's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Baker Hughes Incorporated (BHI)

Q1 2012 Earnings Call

April 24, 2012 8:30 am ET

Executives

Adam B. Anderson - Vice President of Investor Relations

Martin S. Craighead - Chief Executive Officer, President and Director

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

Analysts

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

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

James C. West - Barclays Capital, Research Division

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

Ole H. Slorer - Morgan Stanley, Research Division

Angeline M. Sedita - UBS Investment Bank, Research Division

Kurt Hallead - RBC Capital Markets, LLC, Research Division

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

Presentation

Operator

My name is Stephanie, and I will be your conference facilitator. At this time, I would like to welcome everyone to the Baker Hughes First Quarter 2012 Earnings Conference Call. [Operator Instructions] I will now turn the conference over to Mr. Adam Anderson, Vice President of Investor Relations. Sir, you may proceed.

Adam B. Anderson

Thank you, Stephanie. Good morning, everyone. Welcome to the Baker Hughes First Quarter 2012 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 period 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 detail and turn the call over to Martin Craighead. Martin?

Martin S. Craighead

Thank you, Adam, and good morning, everyone. I'd like to briefly highlight 3 keypoints that summarize the quarter. First, our performance in the international markets was strong when compared to the typical seasonality of Q1. This is in line with our margin improvement objectives.

Second, our North America margins were adversely impacted by 3 issues related to Pressure Pumping. The market shift from gas to oil, pricing decline, as capacity is essentially balanced with demand and the internal execution issues we've previously disclosed.

So that brings me to the final summary point. Our other product lines in North America performed well, especially in Drilling services, Upstream Chemicals, Artificial Lift and Completions. I'll expand on both the Pressure Pumping execution recovery and the success of our other product lines after Peter details the financials. Peter?

Peter A. Ragauss

Thanks, Martin. Good morning. This morning, we reported net income for the first quarter of $379 million or $0.86 per share. Revenue for the first quarter was $5.36 billion, up 18% or $830 million from last year and down 0.5% or $32 million sequentially.

Adjusted EBITDA for the first quarter was $990 million, up 4% from last year and down 16% sequentially. To help in your understanding of the moving pieces, I'll bridge Q1 last year EPS to this quarter's EPS. EPS a year ago was $0.87 per share, add $0.10 for international oilfield operations, subtract $0.08 for North America oilfield operations. Add a $0.01 for lower income taxes and subtract $0.04 for higher corporate costs. That brings us to $0.86 per share.

Bridging the sequential quarters, GAAP EPS for last quarter was $0.72 per share, add $0.50 for the noncash impairment primarily related to trade names. This brings us to the adjusted $1.22 per share that we discussed in the fourth quarter.

In the current quarter, subtract $0.18 for North America oilfield operations, subtract $0.08 for international oilfield operations, subtract $0.02 for industrial services, subtract $0.04 for higher corporate costs, partially due to approximately $10 million of noncash amortization we highlighted last quarter, subtract $0.04 for a higher overall tax rate. That brings us to $0.86 per share.

During the quarter, we reclassified the financial results of our Reservoir Development Services Group, referred to as RDS, under oilfield operations in North America and international, rather than under our Industrial Services segment as in previous periods. We're making this reclassification because RDS supports our global oilfield operations, especially integrated operations. And this will enable more consistent reporting to better reflect their revenues and costs and geographic segments, where the work is performed.

In Table 4 of our earnings release, we provided restated financial information, including the impact of this reclassification on each region's results, as well as the impact of the $350 million before tax noncash impairment primarily related to trade names in the fourth quarter 2011.

At this point on in the conference call, any comments on revenue, operating profit and operating profit margin refer to Table 4. In March, we issued a news release that stated expected operating margin ranges for our North America and international segments.

While our North America margins were in the range provided, our international margins were modestly higher due to stronger-than-expected activity in Europe, Africa, Russia Caspian region.

Revenue in North America was $2.9 billion, up $505 million or 21% compared to a year ago and up $35 million or 1% sequentially. North America operating profit was $401 million, down $54 million year-over-year and down $120 million sequentially. North America operating margin was 14%, down 530 basis points from a year ago and down 450 basis points compared to the previous quarter, primarily driven by the issues in U.S. land Pressure Pumping, as Martin highlighted.

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