Halliburton Company (HAL) on Q1 2021 Results - Earnings Call Transcript
Operator: Ladies and gentlemen, thank you for standing by and welcome to Halliburton’s First Quarter 2021 Earnings Call. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to Abu Zeya, Head of Investor Relations. Please go ahead, sir. Abu Zeya: Good morning, and welcome to the Halliburton first quarter 2021 conference call. As a reminder, today’s call is being webcast and a replay will be available on Halliburton’s website for 7 days. Joining me today are Jeff Miller, Chairman, President and CEO and Lance Loeffler, CFO. Jeff Miller: Thank you, Abu, and good morning everyone. We are off to a good start this year. The world is reopening and even though some regions still experience lockdowns, overall economic and demand recovery continues to build. Oil demand is increasing globally. Oil inventories are down near their five-year averages, and OPEC+ actions continue to support commodity prices. The first quarter strengthened our confidence about how this transition year will play out. Our first quarter performance demonstrates the strength of our strategy and operating leverage in this global market recovery. Here are some highlights. International revenue grew 2% compared to the fourth quarter of 2020. Marketing and activity inflection in the international markets, strong recovery in Latin America more than offset declines in other regions, while margins remained resilient. North America revenue grew 13% as both drilling and completions activity ramped up throughout the quarter. Higher utilization and our significant operating leverage supported sequential margin expansion despite weather disruptions. Lance Loeffler : Thank you, Jeff. Let’s begin this morning with an overview of our first quarter results, compared to the fourth quarter of 2020. Total company revenue for the quarter was $3.5 billion, an increase of 7% and our operating income was $370 million, an increase of 6%, compared to the adjusted operating income of $350 million in the fourth quarter of 2020. Now, let me take a moment to discuss our divisional results in a little bit more detail. In our Completion and Production division, revenue was $1.9 billion or an increase of 3%, while operating income was $252 million, representing a decrease of 11%. The increase in revenue was primarily driven by higher stimulation and artificial lift activity in North America, higher cementing activity in the North Sea, as well as improved stimulation activity in Argentina and Mexico and higher completion tools sales in Latin America. These increases were partially offset by lower cementing services in Russia, lower pressure pumping activity in the Middle East, reduced seasonal completion tool sales and lower well intervention services in the Eastern Hemisphere. Operating income was negatively impacted primarily by decreased completion tool sales and reduced pressure pumping activity in the Eastern Hemisphere. Our Drilling and Evaluation revenue was $1.6 billion or an increase of 11%, while operating income was $171 million, an increase of 46%. These increases were primarily due to higher software sales globally, improved drilling-related services and wireline activity in the Western Hemisphere and Norway and increased project management activity internationally. Partially offsetting these increases were lower drilling-related services across Asia. Moving on to our geographical results. In North America, revenue was $1.4 billion, representing an increase of 13%. These results were primarily driven by higher drilling-related services, stimulation and artificial lift activity in North America Land, as well as higher wireline activity and software sales in North America Land and the Gulf of Mexico. Partially offsetting these increases were reduced completion tool sales and lower cementing and fluids activity in the Gulf of Mexico. Moving to Latin America, revenue was $535 million, representing an increase of 26% resulting primarily from increased activity in multiple product service lines in Argentina and Mexico, as well as higher fluid services in the Caribbean. Partially offsetting these improvements was reduced activity across multiple product service lines in Colombia. Turning to Europe, Africa, CIS, revenue was $634 million, a 1% decrease sequentially, resulting mainly from reduced completion tool sales and well intervention services across the region, coupled with lower activity in Russia and lower fluid services in Kazakhstan. These decreases were partially offset by higher well construction activity in the North Sea and increased software sales across the region. In Middle East Asia, revenue was $878 million or a 6% decrease. These results were primarily driven by lower stimulation and well intervention services in the Middle East, reduced drilling-related activity in Indonesia and China, and lower completion tool sales across the region. Partially offsetting these declines were improved project management activity in Iraq and Saudi Arabia and higher wireline activity across Asia. In the first quarter, our corporate expense totaled $53 million. Looking ahead to the second quarter, we anticipate corporate expense to be slightly higher. Net interest expense for the quarter was $125 million and we expect this level of interest expense to drift slightly lower in the second quarter as a result of our reduced debt balance. Our effective tax rate for the first quarter was approximately 23%. As we go forward into 2021, based on the anticipated market environment and our expected geographic earnings mix, we expect our full year effective tax rate to be approximately 25%. Turning to cash flow, we generated $203 million of cash from operations during the first quarter and $157 million of free cash flow. We also repaid $188 million in maturing debt with cash on hand in the first quarter and we’ll continue to prioritize reducing leverage in the near-term. Capital expenditures during the quarter came in at $104 million. We expect capital equipment deliveries for international projects to ramp up in the second half of the year and as a result, our full year 2021 CapEx guidance remains unchanged. Finally, turning to our near-term operational outlook. Let me provide you with some comments on how we see the second quarter unfolding. In North America, we expect both completions and drilling activity momentum to continue, but sequential activity growth should moderate. In the international markets, we expect a seasonal rebound and a broad based activity increase, the pace of which will vary across different regions. As a result, for our Completion and Production division, we anticipate low double-digit revenue growth sequentially with margins expected to expand by 125 to 150 basis points as a result of our strong operating leverage across all markets. In our Drilling and Evaluation division, we anticipate a mid-single digit revenue increase with margins declining 100 to 125 basis points sequentially. The moderate growth and anticipated reduction in margins are primarily attributed to the seasonal decline in our software sales globally. I’ll now turn the call back over to Jeff. Jeff? Jeff Miller : Thanks, Lance. To sum up, I am optimistic about how this transition year is shaping up. The demand outlook continues to improve both internationally and domestically, even as some regions still experience lockdowns. This year is headed in the right direction and Halliburton is focused on the right things to deliver on our shareholders objectives. We expect our strong international business to continue its profitable growth as activity increases throughout the year. In North America, our business has recovered and is demonstrating margin improvement on the back of our strong operating leverage. Digital is growing our revenue and helping us and our customers increase operational efficiency and reduce costs. Our commitment to capital efficiency is expected to support growth and solid free cash flow generation. And finally, we believe that our strategy to advance cleaner affordable energy positions us well for the future. And now let’s open it up for questions. Operator: Our first question comes from James West with Evercore ISI. James West : Morning guys. Jeff Miller: Morning, James. James West : So Jeff, clearly, international looks good in the back half where we are 90 days from your last conference call and obviously you announced in between. But your visibility on the second half and even more so on 2022, which I think is more important, should have increased at this point. And so, I’d love to hear your thoughts on kind of how the international recovery takes shape, I understand you have double-digit year-over-year second half of this year, but really, as it kind of runs into 2022. How we should be thinking about regions, markets, so where the growth is going to be and then should that double-digit momentum continue? Jeff Miller: Yes. Thanks, James. The – yes, confidence improving and visibility improving around our outlook both for 2021 and for 2022 and in fact, when we see – I see tender pipeline strong, strengthening, these are all sort of the things that start sometime later this year, but really start to get traction in 2022 and even 2023. Some of the programs that we are seeing are shorter cycle barrels, but the fact is, those are actually service intense barrels so it going to drive more upstream spending faster and even if I look at just 2021 outlook confidence is more so today. I think earlier – we see it at a minimum improving to flat year-on-year which is an improvement from what we thought earlier. James West : Right. Okay. Okay. It makes sense. And then as we think about North America, obviously the big E&Ps are going to remain capital disciplined and probably show some really good cash flow this year given where the oil price is, but they’ll step up next year as it committed to spend a certain percentage of cash flow. So, are you starting to have conversations or started to think about 2022 as it reflects to North America and then kind of what the increase could be in spending as oil prices are 30% higher than they were going into this year? Jeff Miller: Yes, James, I think we are going to see sort of the steady cadence of the increase as we move through this year and even into next year. I think, just the feedback and sense I get is that there is a lot of discipline around production and what they can do profitably and also think as we see improvement into 2022. They will face those service cost inflation just because of where everything is today, what needs to be replaced. So, I don’t think it’s – it won’t be the – certainly won’t be the same and I think that tightening of capacity is very good for Halliburton and I think that anything that will be a bit of a governor. James West : Got you. Okay. Thanks, Jeff. Jeff Miller: Thanks. Operator: Our next question comes from Scott Gruber with Citigroup. Scott Gruber : Yes, good morning. Jeff Miller: Good morning, Scott. Scott Gruber : So, as you guys probably heard some of your investor conversations there has been some concern around Halliburton in terms of the C&P margins as we start the year just given the mix towards the domestic completion market and we heard the 2Q guide obviously. How should we be thinking about the second half and assuming no net pricing in the U.S. with the international side starting to accelerate, U.S. continuing to expand on a more efficient and streamlined platform, how should we think about second half incrementals and kind of some high level if could put some color around that? And can we do better than the 2Q pace which looks like to be around 25%? Jeff Miller: Well, look, thanks, Scott. We are confident about the progression in North America certainly for C&P and globally. And I think that the – our goal is to maximize the value of this business and I’ve said I think we expect mid teens full year and I think that’s a solid number and that’s the reflecting and activity increase that is driving the incremental margins as opposed to pricing, no pricing in that. And I think we have visibility towards what will drive pricing which will substantially improve, in fact super charge those incrementals. But I think right now, we are building our outlook around what is a steady cadence of improvement and maintaining, actually continuing to drive further efficiencies in North America with respect to keeping our cost. The reset that we did last year is still alive and well in place. Scott Gruber : Got you. And a similar question on the D&E side. Obviously, some noise on the margin front around the software sales. But maybe some color on the second half for D&E, I guess, the question is, in the past as we’ve seen the international side of the business accelerate off the bottom, we’ve often seen startup costs, the margin improvement potential at least for a couple quarters at the start of the cycle. Is there risk of that this cycle or is that really diminished given the digital applications and streamlining the platform? How should we think about D&E margins expansion in the second half as things start to pick up internationally? Jeff Miller: Yes. Thanks. Look, I think the D&E starting at a higher point than it did finished last year is important. I think it’s just two important things. One, our software business is strong and accretive and it also says though that the rest of the business margins, the breadth of D&E’s margins, the baseline is improving. And so, we are knocking on double-digits as we look out through the rest of the year. As I look at the back half for the international expansion on D&E, we are positioned today for that. And so, the kind of investment we are making, we view it as of March. We want to continue to improve the baseline margins in that business. So, it’s continuing to improve. And so, I think we’ll see improvement in 2021. I think that continues beyond that. And so, our outlook is for continuing to grow those margins. I don’t see the kind of headwinds that we might have seen a year ago when we were ramping for one of the largest contracts in the North Sea. I mean, I don’t see that repeat. And in some of what we are getting also is the benefit of the capital efficiency that’s baked into a lot of our D&E ability to move things around. In fact, that’s at the core of our strategy is capital efficiency and I think that manifests itself around how we move tools and other things. Scott Gruber : Great. Appreciate the color, Jeff. Thank you. Jeff Miller: Thank you. Operator: Our next question comes from David Anderson with Barclays. David Anderson : Hi, good morning, Jeff. I was just wondering if you could just talk briefly about the pressure pumping market. I certainly want to talk about DGB engines; E&P is increasingly looking to move away from diesel. Some of it may be suggesting higher pricing on equipment and I was just wondering if you could kind of tell us where you stand on this and are your customers pushing for this type of equipment? And are you starting to see any bifurcation in the market on pricing because of this? Jeff Miller: Yes. Thanks, Dave. Look, I think as we look into the future, those types of solutions will get pricing earlier and more so. We are seeing more demand for those types of solutions. We have a leading position around whether it’s Tier-4 dual fuel or also the electric. And so, yes, we are seeing the demand. I think that the bifurcation will happen gradually simply because of the ability to do two things; one, put equipment into the market and so the way we look at that is that’s replacement equipment generally. So we’ve got 10% to 12% of our equipment that goes off every year. And so, what we are able to do is replace that with what we view would be higher margin, better returning equipment over time, but that’s more of the pacing that we see. And then the other sort of key components around pricing, I mean, when we look at all of this, but when we think about returns for new equipment – any kind of new equipment, but particularly technology we expect some premium around the technology and also derisking the time horizon impact of making those returns also I think that’s equally key. David Anderson : That makes sense. And then, if I could just switchover to the international side, you talked about improved project management activity in Iraq and Saudi Arabia. I was just wondering first, was there anything noteworthy behind this improvement? Or is this more of the course of business, but kind of more importantly as you talk – look at the tendering activity out there, is this going to be a preferred contracting model for NOCs? I guess, assuming we are at the beginning of a multi-year growth phase and if so, are you comfortable increasing your exposure to project management activity? Jeff Miller: The answer to the first question, Dave, this is sort of normal course of business. We see improvements that we see more activity at different times. So, that’s really all to read through on that. I think the – with respect to project management broadly and how we see those contracts in the future, obviously, a lot of activity around that, we’ll be certainly very thoughtful around how we increase that exposure, we manage that risk. And in fact, the most important component of looking at those types of things is understanding and managing the risk. David Anderson : Of course. Jeff Miller: And it’s one of the reasons also, you hear me say it a lot, but I am talking about profitable growth internationally. And so, that profitable component is going to be the lead punch around how we grow internationally. So we’ll take that. Certainly, we are in that business. We are good at that business. But we are also pretty circumspect around how we make money doing that. David Anderson : Thanks, Jeff. Jeff Miller: Thank you. Operator: Our next question comes from Sean Meakim with JPMorgan. Sean Meakim : Thank you. Hey, good morning. Jeff Miller: Good morning. Lance Loeffler: Hey, Sean. Sean Meakim : So, C&P had pretty good quarter always considered, you expected some mix shift for the back half of the year. Private E&Ps led the very early recovery. You are suggesting some publics to add rigs in the back half. Does this also suggest that you think private E&Ps are mostly as what they can under the current oil price environment? They have been – they are over half the rig count today. They are two-thirds of the rigs as of the trough. But their end economics are not that different maybe than from the publics’. So just curious your visibility on the private E&P activity for the balance of the year. Jeff Miller: Yes. Look, I think that they are the most nimble groups. They are going to move the quick as to engage. They also have a leashed impact on the overall headline production number also. So I think that, I really am encouraged by the activity that we’ve seen. The ability to continue that. I think they are all making their own economic decisions and they make that really without a lot of stakeholder beyond the owners their direction. And so, I think what we are seeing is a natural reaction to that. But I don’t think it’s indicative of how the whole market behaves. And so, they have the ability to get real busy and then, slow down and back it down as they see production start to ramp up a little bit for them and it changes their economics. So, a hard march up into the right not necessarily I think they all make their own decisions and could easily – I am not going to say, back off, but what they will do is make those decisions as other operators start to ramp and that’s obviously a much more disciplined group. They have plans in place. I think the key point to make here though, we are at the end of the first quarter. We are into Q2. And we haven’t talked about any of the kind of budget blow outs that we talked about in prior years where, I, oh, wow, we’ve overspent. So there is something coming that’s going to slow things down. That’s not all what we see. In fact, what I am describing in terms of confidence and the cadence is, the confidence and the cadence that we are going to stay busy in marching through the second half of the year likely up some. In fact, I think our outlook today is up North America, maybe close to 10% on the full year. So, that’s some moderation, but that’s still growing. Sean Meakim : That’s a good point. I’d appreciate that feedback. On D&E results obviously impressively sort of unpacked the impact of seasonal software sales spilling into the first quarter. You have also been press releasing a lot of the new contracts and agreements tied to digital initiatives. So just curious how much of the confidence underlying your margin commentary is driven by the improved mix from digital? And could it eventually be justified to maybe enhance some disclosure around the materiality of digital to your results? Jeff Miller: Well, it’s certainly digital enhancing our margins. But that’s – and that’s certainly where we want to see that go and we expect it to continue. It’s also baked into all aspects of our business. So, from a digital perspective, it is sort of equal parts, customer-oriented by just consulting and software sales. It’s also equal parts making our tools better, so they become answer products and we sell them through the normal course of business, but they meaningfully impact the value of those tools. And then finally, what it does internally to drive our own cost down and so helping, yes, but I think more importantly, when I look at D&E is again back to that baseline of improving margins, which is built on the back of sort of the iCruise performance and technology there - wireline performance and technology there. So, those kinds of things that are operational. We can see them. We see them getting traction, more broad traction. Those are the kinds of things that as we look into a multi-year upcycle internationally, that’s what’s going to drive margin up 2021, 2022, 2023. Sean Meakim : Really helpful. Thanks, Jeff. Operator: Our next question comes from Ian Macpherson with Simmons. Ian Macpherson : Thanks, good morning guys. Jeff, I wanted to ask you for an update on your innovative frac operations. You spoke interestingly last quarter about the SmartFleet as well as we’ve seen what you’ve accomplished with the grid fracking. I know there has been some IP contest there. I don’t – we don’t need to talk about that, but just kind of an update on how those operations on leading edge technology in domestic frac are going? And how you see that blossoming over the course of the year with incremental fleets of those varieties? Jeff Miller: Yes, look, I really like the technology. I like what we’ve done. The smart fleet is as advertised. We got more trials to do. But we continue to find more effective ways to deliver that solution which should allow it to scale even more quickly. I think it’s going to continue to gain a lot of traction, very capital-efficient approach to implementing technology, because it implements with the equipment that we have. From an e-fleet standpoint, again, certainly pleased with the performance that we’ve seen. Yes, it continues to drive or deliver on the kinds of efficiencies we probably would see both for us in terms of utilization and dollars per horsepower. Lot of interest from customers around that technology also. But just remember we are maximizing value in North America. So we only put this equipment out when it meets our return expectations and we can do this – the time horizon. And so, it’s not – it’s going to look more like replacement of upgrading replacements as opposed to sort of new investment. Ian Macpherson : Understood. Thanks, Jeff. And then, separately, Lance, I want to ask you about the free cash flow progression going into Q2 and for the rest year. Obviously, the CapEx was light loaded in Q1. And so, just thoughts on how the CapEx sequences through the year? And just general, maybe a refresh on total absolute dollar working capital framework for this year – no, sorry, not working capital, but bottom-line free cash? Lance Loeffler: Yes, no. Good question Ian. Look, I think, overall, as everyone knows, maximizing free cash flow remains the key priority for us and what we are focused on. But more so, free cash flow is driven by margin progression and then all aspects of the capital efficiency. I know, Jeff covered a little bit in his prepared remarks around efficiency and working capital and remaining disciplined around CapEx. Look, more operating profit we see ahead based on our activity outlook improving and obviously the progression around margins that we’ve discussed already this morning, we are pretty optimistic about what all of that means for 2021 free cash flow target, which today gives us more confidence that we will be sort of ahead of where consensus sits today even excluding the change in the metric that we’ve outlined this quarter. Ian Macpherson : Perfect. Thanks, Lance. Lance Loeffler: You bet, Ian. Operator: Our next question comes from Chase Mulvehill with Bank of America. Chase Mulvehill : Hey. Good morning, everybody. Jeff Miller: Hey. Good morning, Chase. Chase Mulvehill : Hey Jeff and Lance. So, I guess, in your prepared remarks, you talked about a doubling of the value of submitted bids across the international market we compare that to what you saw last year. So, I guess, I was hoping that maybe you could provide a little color relative to the mix between NOC, IOCs, independent E&Ps and maybe the regions that you see the most pick up in bidding activity. And then, I don’t know if you’d be willing to kind of step out or squeeze a little bit and so, what it might would mean for activity as we kind of get into 2022 if you start signing a lot of these contracts. And so, I know you talked about some continued growth and some strong growth on the international side over the medium-term. But I don’t know if you’d like to quantify that at this point just given the bid activity you are seeing. Jeff Miller: Yes, look, I think that the type of activity we are seeing is probably more weighted towards Middle East, Latin America, broadly in terms of tender activity. I think that I am not going to try to quantify things that are two derivatives, kind of deviations in the future, but what our view is, that’s certainly indicative of a growing market and a kind of market that will grow over time. We are going to engage in that and participate in it, but at the end – and be successful. But our view is, A. focus on profitable growth and drive international revenue growth that way, but I think we are also going to see that sort of lead to the broader based kind of recovery which is equally important to price and so that bring that up is to say that these big tenders are always very competitive from a price standpoint. But where we start to see price improvement typically is as the market sort of starts to fill up, then we see more opportunities and that is how we see the international market shaping up. So, I think that’s an equally important concept to what we are seeing in terms of growth. Chase Mulvehill : Okay. Thanks for the color there. And maybe I can kind of come back to the conversation around U.S. onshore and try to tease out a little bit more in the publics versus privates. I don’t know if you’d be kind of willing to share your mix of publics versus privates in the U.S. onshore. I know, kind of overall rig activity is roughly half between the publics and privates today and it continues to kind of see a shift towards privates as activity continues to rebound because they are obviously responding to a high oil price while the publics are not. So, maybe just talk to your mix and kind of what advantages you think you have when you look to kind of pursue more opportunities on the private side versus your competitors? Jeff Miller: Look, we have a great footprint in North America. We’ve got a leading position in North America, which means we really work for all of the customers in North America. So, from a mix perspective, what we look for is efficiency. We look for opportunity. We look for growth opportunity and we look for uptake on technology and performance. And so, I think the – that’s the way we view the market less around, A versus B, but it’s more do they have the characteristics that allow us to drive our value proposition in market and maximize the kind of returns like we are talking about. And so, I think that, that moves in different times depending on where the market is, but it doesn’t easily change a whole lot. Chase Mulvehill : Okay. I’ll turn it back over. Thanks, Jeff. Jeff Miller: Thank you. Operator: Our next question comes from Marc Bianchi with Cowen. Marc Bianchi : Thank you. I guess, thinking about the cost structure going forward, there are few variables I think with COVID normalization hopefully coming out of COVID where, maybe there could be some increased travel and entertainment expense. I am curious how that sort of factors into the margin outlook that you have and if there is any risk to maybe a headwind to margin as we get into the back half of the year? Jeff Miller: Yes. Thanks. Look, those types of costs are in our outlook. So, I don't – we manage cost all of the time. I don't see a bow wave of that coming back. We've reset the earnings. We reset it in terms of how we work and how we move people around and how we go to market. So, look forward to the market opening. I think that's going to drive a lot more demand that will continue to drive demand for oil. But I think from – from our standpoint, we're going to – we just manage those costs. Marc Bianchi : Yes. Thanks for that, Jeff. And Lance, back on the free cash flow, working cap was a positive number this quarter, but then there was another sort of 250 drag or outflow from other operating outflows. Could you talk about that? And then, just as I think about those two lines over the course of the year, would you expect them to be net neutral, positive, negative? Lance Loeffler : Yes. So, other operating in the cash flow line item tends to be pretty heavy in the first quarter. We've got compensation that tends to hit in the first quarter, as well as, taxes are heavy with property taxes, et cetera. And so, that's not atypical from us from a, intra-year cyclicality perspective. We expect that to lighten up obviously into Q, but that's – that's sort of the color I would give you on that. Marc Bianchi : Okay. Thanks for that. I'll turn it back. Lance Loeffler : Thanks. Thanks, Marc. Marc Bianchi : Thank you. Operator: Our next question comes from Connor Lynagh with Morgan Stanley. Connor Lynagh : Yes. Thank you. I was hoping we could put a finer point on some of the discussion on pricing in international. You made the comment that obviously large tenders will be competitive, but leading edge pricing should increase. Can you maybe frame for us the extent to which leading edge pricing is meaningfully different from what you're more sort of contracts book looks like? In other words, if leading edge pricing is moving higher would that imply that contract pricing will follow? Or is there a market-to-market impact we should talk about? Jeff Miller: No, I think contract pricing will follow is the way that works generally. It starts there. The contracts themselves improve over time and I think that having alternatives that are higher priced also helped to create pressure – upward pressure on pricing even in large contracts. Lance Loeffler : And I would add. I mean, that's what Jeff is describing is exactly what we were seeing in the early part or late part of 2019 and 2020 was that dynamic in terms of large tenders still bid competitively. But rising level of activity was tightening the rest of the broader market. Obviously, we took a pause with COVID, but we expect as we see activity levels creep back to where we were in those – at that period of time, I think we are optimistic that we start to see the same behavior from a pricing perspective. Connor Lynagh : Got it. It makes sense. And I guess, just further to that, so on the large tender side of things, there has been some discussion about some of the softer elements maybe improving before pricing. How do you, guys feel about the potential for terms and conditions or different types of ancillary charges improving in the near term? And I guess, the other question is, you've made a lot of changes to your cost structure. Do you think you can maybe drive improved margins without the increase in pricing? Jeff Miller: Yes, we expect to do that and that's as we continue to see activity come on we will see improving margins. Always working on T's and C's. There are always leading edge sort of things that we are working on that they come easier to do become very important overtime to do. We are doing those all of the time and we are doing those now. Also, digital sort of implicit through all of this. So when you see our digital improving driving margins better all of the time. And so, I think, we should see improving margins before we see even the pricing, but I think the pricing, that's what allows us to really that's where we see the real traction and incrementals. Connor Lynagh : Appreciate the color. Thanks. Operator: Our next question comes from Chris Voie with Wells Fargo. Chris Voie: Thanks. Good morning. Just want to ask first on some of the cost inflation that was mentioned in the prepared remarks. Is that mostly getting offset in the pretty near-term maybe this quarter next? Or is there any impacts that could be flowing through as you get price recovery in the second and third quarter? Just curious if there is going to any tailwind from that? Lance Loeffler : Yes, Chris. This is Lance. Yes, I mean, a lot of that’s largely, the cost of inflation that we describe is driven by what's happening in North America and the growth that we are seeing there. Some of it was driven by the impact of the storms, right and some of the shortages that we saw across the value chain. But I would say, look, our size and scale gives us an inherent advantage to negotiate the best deals in a lot of those consumables. And to the extent a lot of our commercial arrangements allow us to pass that through to the customer. Our guidance overall sort of incorporates that. And I think, look, we are always going to be continuing to focus on maximizing our value in North America regardless of the challenges in the environment. But that’s sort of baked into how we see at least, the near-term playing out and obviously the outlook we've given the year. Chris Voie: Okay. Thanks. That's helpful. And then, maybe on CapEx. So, I think in the past you said 5% to 6% range. In the data it looks like service intensity is very high. Pricing has not really caught up with the amount of work that’s getting done. So just curious to check in on the 5% to 6% range. If you expect that would still be in place for 2021 and probably 2022 as well. Jeff Miller: Yes. Yes. I mean, that's what we talk about capital efficiency and driving capital efficiency through all parts of our business. That's what allows us to get to that 5% to 6% of revenues in terms of CapEx spend. So yes, for 2021 and 2022. Chris Voie: Perfect. Thank you. Jeff Miller: Thanks. Operator: That concludes today's question-and-answer session. I'd like to turn the call back to Jeff Miller for closing remarks. Jeff Miller: Okay. Thank you, Liz. Before we end the call, I'd like to make a few closing comments. I am encouraged by this year's positive momentum and demand recovery. We are well positioned globally for growing international demand. The expected steady activity cadence in North America and with our leading digital technologies, which allow us to maximize value for Halliburton and its shareholders. We look forward to speaking with you again next quarter. Liz, please close out the call. Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.HAL Ratings Summary
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Citi Lowers Halliburton Price Target Amid Softer Domestic Market
Citi analysts lowered their price target for Halliburton (NYSE:HAL) to $45 from $50 while maintaining a Buy rating on the stock. The analysts cited a slightly weaker domestic frac market as the reason for adjusting the company's financial estimates. Q2 revenue estimate has been trimmed by 1% to $5.93 billion, with EBITDA also reduced by 1% to $1.33 billion, which remains 1% above Street estimates.
For Q3, North American revenues are expected to remain flat at $2.6 billion, while Q4 revenues are projected to decline by 7% sequentially to $2.41 billion due to anticipated seasonal weakness and efficiency gains in frac operations. Despite these challenges, international operations are expected to remain strong, with a forecast of 5% sequential growth in Q3 and 4% in Q4, contributing to a 10% year-over-year increase.
Citi’s Q3 EBITDA estimate stands at $1.39 billion, aligning with Street estimates, while the Q4 forecast is set at $1.37 billion, 5% below consensus. Looking ahead to 2025, Citi anticipates 4% growth in North America and 7% internationally, driving total EBITDA to $5.79 billion, which is 6% below previous expectations and 4% below Street estimates.
Wolfe Research Targets Halliburton (HAL) with $52 Price, Foresees 34% Upside
Wolfe Research Sets New Price Target for Halliburton (HAL:NYSE)
Sam Margolin of Wolfe Research has recently set a new price target for Halliburton (HAL:NYSE) at $52, as reported by StreetInsider on April 23, 2024. This ambitious target suggests a significant potential upside of approximately 34.06% from HAL's trading price at the time of the announcement, which was $38.79. This optimistic outlook from Wolfe Research on HAL's future market performance is grounded in the company's recent financial achievements and operational strengths, particularly in its Completion and Production division and its growing international presence.
Halliburton's stronger-than-expected profits for the first quarter of 2024 have been a key driver behind this positive assessment. The company's Completion and Production division played a crucial role in this success, contributing to another quarter where Halliburton surpassed earnings estimates. This performance underscores the company's operational excellence and its ability to exceed investor expectations, as highlighted by Zacks Investment Research on the same day. The robust performance of this division is indicative of Halliburton's strategic focus and operational efficiency, which have been instrumental in its financial success.
Furthermore, Halliburton's growing strength in international markets has been a significant factor in its financial performance, helping to mitigate the effects of a slowdown in North America. An increase in drilling demand from international markets has been pivotal, as reported by Reuters on April 23, 2024. This international expansion not only diversifies Halliburton's revenue streams but also reduces its dependence on the North American market, positioning the company for sustained growth in the face of regional market fluctuations.
The financial results for the first quarter of 2024 further solidify Halliburton's strong market position. With a net income of $606 million, or $0.68 per diluted share, and an adjusted net income of $679 million, or $0.76 per diluted share, Halliburton demonstrates its financial resilience. Although there was a slight decrease from the first quarter of 2023, the company still managed to achieve modest revenue growth, with total revenue reaching $5.8 billion, marking a 2% increase from the same period in the previous year. This financial stability, combined with a strategic focus on international markets and operational excellence, forms the basis of Wolfe Research's optimistic outlook for Halliburton.
Currently, Halliburton is trading at $38.59 on the NYSE, with a market capitalization of approximately $34.34 billion. Despite a slight decrease of $0.14 or -0.35% in its stock price, the company's performance over the past year—with a peak of $43.85 and a low of $27.84—reflects its market resilience and potential for growth. This trading activity, coupled with the company's solid financial results and strategic operational focus, supports the optimistic price target set by Wolfe Research, suggesting a promising future for Halliburton in the market.
