Shares of Halliburton (HAL - Get Report) fell slightly in pre-market trading on Monday after the company cautioned on international weakness in its business, but posted better-than-expected earnings for the fiscal fourth quarter.
The Houston-based company reported a loss of $0.17 a share. Adjusted for one-time costs, including a class action suit settlement, earnings came in at $0.04 a share, which beat analysts' estimates calling for $0.02 a share. Revenue of $4.0 billion fell just short of forecasts. The company also incurred a $92 million of foreign currency exchange losses, of which $53 million was due to the impact of the devaluation of the Egyptian pound.
CEO Dave Lesar said in a statement that, "The North America market appears to have rounded the corner, but the international downward cycle is still playing out."
For the full year, Halliburton reported revenue of $15.9 billion, a 33% decline from 2015.
"Guided by the lessons learned from past industry cycles, our strategy focused not only on managing costs but also on aligning our resources to strengthen our market position," Lesar said. He continued to say that Halliburton gained significant market share through the downturn, which continued into the fourth quarter, "as we outgrew our primary competitor in North America, Latin America and the Eastern Hemisphere."
The CEO, however, noted that the energy market is "a tale of two cycles."
Halliburton said it returned to operating profitability in North American, achieving 65% incremental margins. The North America segment saw the largest increase in revenue to $1.8 billion, which represents a 9% increase sequentially, as the average U.S. rig count rose 23%. The company said its operating results improved by $94 million driven primarily by increased pricing and utilization throughout the U.S. land sector and effective cost management.
On the international front, Halliburton reported revenue of $2.2 billion, a 2% increase sequentially, which was driven by improved activity in the Production Enhancement, Landmark, and Consulting and Project Management.
Due to Halliburton's exposure to North American activity and pricing, the company is a top pick for J.P. Morgan in 2017.
"With an evolving realignment of the sector now including a Baker Hughes (BHI) - General Electric (GE - Get Report) pairing, HAL is effectively an investor's best liquid NAM onshore 'beta' with the benefit of top notch execution," J.P. Morgan Analyst Sean Meakim wrote on in a research note on Jan. 18. "We like the company's ability to drive pricing and margins in a more bullish upcycle as well as contain expenses to mitigate losses if the cycle undershoots."
The firm rates HAL shares at Overweight with a $63 price target.