Baker Hughes cuts margin prediction

Baker Hughes says 4Q North America profitability will be lower than previously expected

Associated Press

HOUSTON (AP) -- Baker Hughes Inc. said Tuesday that it expects its North American revenue and profitability to be lower than previously it previously thought because of weaker-than-expected onshore drilling and falling prices at its pressure pumping operations.

In addition the Houston-based oilfield services company said its overseas operations are being hurt by things like fewer rigs in Brazil and Columbia, as well as delays in North Sea and Iraq operations.

Baker Hughes sees North America operating profit before-tax margin at 8.5 percent to 9.5 percent in the fourth quarter, compared to 11 percent in the third quarter. The company still expects its international profitability before taxes to be similar to third-quarter levels.

Jefferies analyst Brad Handler backed his "Hold" rating, but cut his price target for Baker Hughes by $4 to $43 to reflect more conservative exploration and production spending and to account for the company's plans to pull out of low-performing countries.

Handler added that the weakness in the company's domestic and international margins announced Tuesday "further dampens" its outlook.

Sterne Agee analyst Stephen Gengaro kept his "Buy" rating on the stock, but he said weak margins will lower than company's fourth-quarter earnings by 15 to 19 cents per share, for a quarterly profit of 59 to 63 cents per share.

Gengaro previously expected a profit of 78 cents per share, while analysts polled by FactSet forecast 72 cents per share.

Baker Hughes' announcement comes after Schlumberger Ltd. said Friday that drilling slowdowns and price cuts will hurt its fourth-quarter earnings.

That company said that weaker-than-expected land drilling in the U.S. and Western Canada, combined with contractual delays and slowdowns overseas, are expected to cut earnings in the current quarter by 5 to 7 cents per share. Schlumberger hasn't released formal fourth-quarter earnings guidance yet.

Baker Hughes shares rose $1.74, or 4.3 percent, to $42.38 in afternoon trading.

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