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Halliburton May Post Lower Q4 Profit, Margins In Focus

 January 23, 2013 01:13 PM
 


(By Mani) Halliburton Company (NYSE: HAL) is expected to post lower profit for its fourth quarter when it reports quarterly results on Jan.25 due to seasonal slowdowns.

Halliburton, one of the biggest oilfield services companies and serves the upstream oil and gas industry. Results of Halliburton along with its rival Schlumberger Ltd. (NYSE: SLB) are closely watched to get a birds eye view of the oilfield service industry's performance.

Peer Schlumberger reported that its fourth-quarter net income attributable to the company slid to $1.36 billion, from $1.41 billion a year before. On a reported basis, income from continuing operations totaled $1.37 billion, versus last year's $1.40 billion.

[Related -Halliburton Company (HAL): Near-Term Choppiness, But Long-Term Positive]

Excluding charges and credits, adjusted income from continuing operations attributable to Schlumberger was $1.44 billion or $1.08 per share. Revenue for the quarter advanced to $11.17 billion from last year's $10.30 billion. Analysts estimated revenues of $10.82 billion for the quarter.

Since Schlumberger's results were impacted by seasonal slowdowns and contract delays and new project start-up costs, the same should apply for Halliburton, as well. In North America, strong performance in the U.S. Gulf of Mexico overcame lower-than-expected activity in Canada and further weakening in the U.S. land markets.

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Wall Street analysts polled by Thomson Reuters, on average, expect Halliburton's earnings to fall 39 percent to 61 cents from $1 earned in the fourth quarter of last year. Halliburton's earnings have topped the Street's view in all of the preceding four quarters while consensus estimates have dropped in the past 90 days from 62 cents.

Quarterly revenues are expected to remain flat with last year at $7.06 billion. For the year, revenue is projected to come in at $28.27 billion.

Investors should be looking for company's strategy to expand in international markets, and the outlook for the margins over the next two years.

Meanwhile, margins will be in focus as a series of crises drove investors from risk (Macondo, sovereign debt, Arab Spring, fiscal cliff) appear to be abating. In North America, despite a slow start, profitability should surprise positively simply from a normalization of activity given the market's chronic under-estimation of the impact of utilization on margins.

"As the year progresses, we see positive momentum being sustained by a nascent recovery in the long-suffering natural gas market," Deutsche Bank analyst Mike Urban wrote in a note to clients.

Halliburton is currently focusing more on the oil market as supply gluts and low prices are discouraging new drilling, and fracking operations in the natural gas market is lowering demand for new equipment.

Internationally, the activity recovery should remain slow and steady with margins finally turning the corner as operating leverage kicks in, old contracts roll and pricing improves.

For the third quarter, Halliburton reported net income of $602 million or 65 cents per share, down from $683 million or 74 cents per share in the previous-year quarter. Excluding a $30 million after-tax acquisition-related charge and a $13 million after-tax gain from the settlement of a patent infringement case, it earned 67 cents per share. Total revenue for the quarter rose 9 percent to $7.11 billion.

Halliburton's U.S. rig count for the third quarter was down 2 percent compared to the prior-year period while Canada rig count declined 26 percent. The company, which supplies drilling equipment to both natural gas and oil companies, also saw activity reductions by some of its customers as they continued to moderate activity to operate within their stated 2012 budgets.

The stock, which has a P/E ratio of 12.7 times, has gained 20 percent in the past six months and is nearing its resistant price of $38.27. Out of 34 analysts covering the stock, 24 (71 percent) of them have a rating of "strong buy" or buy," while 10 analysts (29 percent) recommend "hold." There were no "sell" ratings on the stock.

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