Halliburton Company (HAL) on Q2 2021 Results - Earnings Call Transcript
Operator: Ladies and gentlemen, thank you for standing by and welcome to Halliburton's Second 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 second 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. Jeff Miller: Thank you, Abu. And good morning, everyone. Our performance in the second quarter demonstrates that our clear strategy is working well and Halliburton strategic priorities are driving value. Let's get right to the highlights. Total company revenue increased 7% sequentially as both North America and international top line continued to improve. Operating income grew 17% with solid margin performance in both divisions. Our Completion and Production division revenue increased 10%, driven by the strength in US land completions. C&P delivered operating margin of 16% in the second quarter, reaching three-year highs. Our Drilling and Evaluation division revenue grew 5%. Operating margin of 11% was about flat sequentially with rig count increases across multiple regions, offsetting a seasonal decline in software sales. North America revenue grew 12% as both Drilling and Evaluation activity marched higher throughout the quarter. Increased utilization and our significant operating leverage supported sequential margin expansion. International revenue grew 4% sequentially, with activity increasing in the key producing regions of the world despite COVID-19 disruptions in various countries. Finally, we generated strong free cash flow this quarter, bringing the year-to-date free cash flow to almost $425 million. Lance Loeffler : Thank you, Jeff. And good morning. Let me begin with a summary of our second quarter results compared to the first quarter of 2021. Total company revenue for the quarter was $3.7 billion and operating income was $434 million, an increase of 7% and 17% respectively. Higher equipment utilization and our significant operating leverage supported these strong results as rig counts moved up globally in the second quarter. Now, let me take a moment to discuss our division results in a little more detail. Starting with our Completion and Production division, revenue was $2 billion, an increase of 10%, while operating income was $317 million or an increase of 26%. These improvements were driven by higher activity across multiple product service lines in North America land, improved cementing activity in the Eastern Hemisphere and Latin America, increased completion tool sales in the Middle East, the North Sea and Latin America, as well as higher well intervention services in Saudi Arabia and Algeria. These improvements were partially offset by lower stimulation activity in Latin America. In our Drilling and Evaluation division, revenue was $1.7 billion, an increase of 5%, while operating income was $175 million or an increase of 2%. These results were driven by improved drilling-related services and wireline activity across all regions, along with increased testing services in the Eastern Hemisphere. Partially offsetting these improvements were reduced software sales globally. Moving on to our geographic results. In North America, revenue increased 12%, primarily driven by higher pressure pumping services, drilling related services and wireline activity in North America land, as well as higher well construction activity in the Gulf of Mexico. Partially offsetting these increases were reduced software sales across the region. Turning to Latin America, revenue was flat sequentially, primarily driven by increased activity in multiple product service lines in Mexico, higher fluid services in Brazil, as well as additional completion tool sales in Guyana. These results were offset by lower stimulation activity in Argentina, Mexico and Brazil, decreased software sales across the region, and lower project management activity in Mexico and Ecuador. In Europe, Africa, CIS, revenue increased 7%, resulting from increased activity across multiple product service lines in Russia, Norway, Algeria, and Ghana. These increases were partially offset by lower software sales across the region and lower activity in Nigeria. In the Middle East/Asia region, revenue increased 5%, resulting from improved activity in multiple product service lines in Saudi Arabia, improved well intervention services across the region, increased drilling-related services in Oman, higher completion tool sales in Kuwait, improved well construction activity in Australia and increased pipeline services in China. These improvements were offset by lower software sales across the region, reduced project management activity in India and lower overall activity in Bangladesh. In the second quarter, our corporate and other expenses totaled $58 million. For the third quarter, we expect our corporate expense to remain largely unchanged. Net interest expense for the quarter was $120 million and should remain flat for the third quarter. We remain focused on reducing our leverage in the near term, and recently announced the redemption of our remaining 2021 senior notes at par ahead of schedule in August using cash on hand, which should reduce interest expense beyond the third quarter. Our effective tax rate for the second quarter came in better than expected at approximately 22%, benefiting from several one-time discrete items. Based on our anticipated geographic earnings mix, we expect our third quarter effective tax rate to be approximately 25%. Capital expenditures for the quarter were approximately $190 million and will continue to ramp up for the remainder of the year. However, we will stay within our full-year target of 5% to 6% of revenue. Turning to cash flow, we generated $409 million of cash from operations and $265 million of free cash flow during the second quarter. We believe that our year-to-date and expected earnings performance for the remainder of the year, combined with efficient working capital management, should result in a full-year free cash flow of approximately $1.2 billion. The growth and earnings outlook that Jeff laid out positions us well to grow our free cash flow over the next couple of years. Now, let me turn to our near-term outlook. In the international markets, we expect a steady increase in activity as the rig counts continued to recover. In North America, we anticipate modest pricing improvement and continued activity momentum in both completions and drilling, but sequential activity growth will be slower than in prior quarters. As a result, for our Completion and Production division, we anticipate high single-digit revenue growth sequentially, with margins expected to modestly increase by 25 basis points to 50 basis points. In our Drilling and Evaluation division, we anticipate sequential revenue growth of 3% to 5% due to continued rig count increases globally and a margin increase similar to that of our C&P division. I will now turn the call back over to Jeff. Jeff? Jeff Miller : Thanks, Lance. Before I wrap up our discussion today, I want to thank our employees for their terrific execution on our value proposition, dedication to Halliburton, and excellent service delivery for our customers. Now, let me summarize what we believe and expect will unfold. We're in the early innings of a multi-year upcycle. As oil demand exceeds supply, the macro environment will be constructive for both international and US markets. Halliburton's unique value proposition, integrated service portfolio and differentiated technologies position us to outperform in this market. We have significant growth potential in new markets with our specialty chemicals and artificial lift businesses. Our technical differentiation allows us to disproportionately benefit from equipment capacity tightening across markets. Improved pricing, higher utilization, and our significant operating leverage will deliver strong incrementals for Halliburton in this upcycle. We will continue to execute on our strategic priorities and remain committed to driving strong double-digit growth, margin expansion, significant free cash flow and returns for our shareholders as this multi-year upcycle unfolds. And now, let's open it up for questions. Operator: . Our first question comes from James West with Evercore ISI. James West: Jeff, you gave a great outline of what you what you see as this multi-year expansion for the business? And we certainly agree with what you're suggesting? How do your customers – when you're looking at the mosaic of all your different customers and all the different regions, are they aligned with kind of that view that it's time to get after it, we need to put some supply into the market and get going? Jeff Miller: Look, I think what we're looking at today is the macro. When we talk to our customers, particularly publics, they're going to do exactly what they've said they're going to do, and I think we see that playing out. But we also have a good view of the macro in terms of supply and demand. And I think, from that perspective, the planet will demand oil. Where does it come from? Clearly, we've got line of sight to improving activity internationally. I describe that primarily with NOCs. And yes, I think that it's not zeal, its steady march to produce more barrels. And then I think that the call back on the US is simply going to be that – that underinvestment that we've seen for a number of years internationally, it doesn't just spring back into action. And I think that's very positive for North America. So, from a customer perspective, obviously, the privates are much more opportunistic around the supportive oil price. So, we see quite a bit of activity and outlook from them. James West: As we think about the returns on the assets that you are putting into the field, right now, we're probably at sub-optimal type of return levels. So, you need prices to go up. And so, what are the levers? Or how quickly do you think pricing can move in this market to get back to what you need – would want to achieve to drive returns higher? Jeff Miller: James, it's a process. And it's probably multiple iterations. But I think we're seeing net pricing to a certain degree today in the US slow going, but moving. And as we work through into 2022, I expect that continues to accelerate. Internationally, I think it takes on the same type of dynamics that we saw in 2019, where markets, individual markets see tightness, see pricing, large tenders remain very competitive. And from our perspective, that worked well for Halliburton in 2019 and into the first quarter of 2020. And we've been very clear, I think, about profitable growth. And so, I think it's key when I think about growth internationally, the key words there being profitable growth. And we see multiple years of growth in front of us. And for that reason, want to be deliberate about how we put equipment to work and make money. Operator: Our next question comes from David Anderson with Barclays. David Anderson: Some clearly very bullish comments looking out over the next couple of years. I was wondering if you could talk about maybe some of the signs that you're seeing on the international side, particularly the Middle East NOCs. Now, you've talked about increased completion tool sales, some artificial lift contracts and other tenders. Yesterday, Aramco suggests maybe shifting 6 billion more into upstream. I was just wondering when you start to see this inflect and when does it come through. We haven't yet seen the rig count pick up. Does 3Q guide indicate sort of a similar outpace of activity from second quarter. But at the same time, Middle East feels like it should be leading that double-digit growth – the double-digit guidance next year. I was wondering if you could just help me kind of understand that trajectory. Maybe it's obviously not a very opaque – or it's more of an opaque market. Just help us kind of see what you're seeing in that part of the world. Jeff Miller: What we see is, let's say, broadly Middle East adding activity, adding it sort of as we speak, but more so focused towards next year. So, I think that we see – well, I think second half to second half, we're going to be up probably mid double-digits for 2021 versus 2020. So, where does that come from? I think that alone is increasing. And we see that sort of across the Middle East. But we also see it in Argentina, as an example. We see it in other parts of the market. And so, I think that gets traction and continues to get traction as we go further into 2022. But the activities – the demand signs are there now that we're seeing, and I think we see growth. But I think that continues to accelerate as we get into 2022 and 2023. But it doesn't necessarily overcome all the under-investment. So, I think that there's work to be done to grow that business. For operators to grow production, I think we see signs of growth now. But I think it'll be more pronounced in 2022. And we describe 2021 as a transition year. So, we still see COVID slowdowns in markets. There's a number of rigs that aren't working because they're not staffed today, not by us, but just in general. And so, that type of disruption is weighing down on things a bit. But I fully expect this to work through that through the balance of 2021. David Anderson: Kind of a different topic. I just wanted to ask about kind of some of the inflation that maybe you're seeing on the North American side, particularly maybe if it impacted your C&P margins at all this quarter. I know you're not really seeing a real net pricing right now. But I'm just kind of curious what the E&Ps are seeing in terms of inflation. Are we talking like 5% these days? And sort of around that same question, wondering about labor. If we do see this increase next year in E&P budgets and assuming completion crews are added over the next 12 months, the industry doesn't really seem ready for that labor wise. I'm just kind of curious how that inflation could kind of start working its way through. And obviously, that could lead to net pricing at some point. But maybe just talk about some of those components that you're seeing on the North American side, please. Jeff Miller: I can speak to what we see in terms of inflation. And we saw inflation in many parts of our business, whether it's maintenance, in particular, cost, parts and people to do it. But we've also been able to pass that along. And in certain cases get – I think as we get through the second half of this year, we're seeing some net pricing now. And I think we'll see more of that more so as we go into 2022. But the ability to recover inflation is an important step also. In the range, is 5% to 10%, 5%? It moves all around depending on the category. From a people perspective, we've been able to staff our equipment. We've got a very large footprint and have access to lots of people. And so, yeah, we have seen some attrition or turnover, but we've also been able to replace folks fairly efficiently. Operator: Next question comes from Chase Mulvehill with Bank of America. Chase Mulvehill: I guess first thing, really appreciate you guys kind of giving some visibility over your outlook for the next couple of years on kind of top line and margins. And kind of looking back, if we were to go back to kind of pre kind of 2014 levels and basically look at the prior decade, you sustained 20% plus EBITDA margins for basically a decade and that even includes the 2009 downturn. And so, you've given us guidance that EBITDA margins will get comfortably above 20% over the next couple of years. So, I guess two questions. Number one, when do you think we will get back to that 20% EBITDA mark? Are you comfortable that it's first half of next year, second half of next year? And then, once we get there, how sustainable is 20% EBITDA margins? We haven't been above 20% since before 2014. But how sustainable do you think the 20% EBITDA margins will be over the next cycle? Jeff Miller: I think I've given you my outlook over the next couple of years. And so, over that period of time, we approach and then exceed those numbers that we got to in 2016. I think the most important part of this is the sustainability of that. And I feel like we see the strengthening macro and our unique competitive position in the marketplace very sustainable. I think we're back on to footing that we have to produce more, the things that we do to create value become more important. An example being the technology and our equipment in North America or our drilling technology, different elements of technology, whether it's digital or lift. But all of those things are what are so important in a market that requires more barrels, and that's what we see unfolding. And so, I think very sustainable. I've described it as the early innings. I think these are the early innings of at least a nine inning game to be played. And so, I really am convicted and excited about the outlook. Chase Mulvehill: A quick follow-up. You've given us this couple year outlook. Obviously, that's going to lead to some pretty strong free cash flow. You're paying down the 2021 notes here. So, what's the plan for excess free cash flow as we kind of get into 2022 and leverage ratios get to more comfortable levels? Is it a dividend bump? Special dividends, buybacks, M&A, or just maybe just build cash on the balance sheet? Lance Loeffler: You're right. In the near term, we're focused on trimming our debt levels. I think that that focus – good example of that focus is what we plan to do this month or early next, actually, with the $500 million maturity that we have coming due, paying it down with cash. Look, I think we're getting to a point where we're continuing to strive to cut our debt levels and get back to that 2 times debt to EBITDA leverage ratio that we've talked about before. But I think we are getting to a point where we intend to return more cash to shareholders, whether in the form of a dividend or share repurchase, not willing to commit to that at this point. But it's certainly something that we think is an and type scenario. So, we continue to trim our level of debt and improve the level of cash that we send back to shareholders. Operator: Next question comes from Scott Gruber with Citigroup. Scott Gruber: I wanted to get some more color on the encouraging pricing trends here in North America. Is the net pricing that you're garnering, is that going to impact margins much in the second half? I ask because when you look at the 3Q guide, the embedded incrementals look to be kind of on the order of 20-ish-percent. And I would just think it'd be something greater than that if it's really having a big impact. Is there just a time lag here? Are there other offsets, maybe on equipment sales? Or do we just really need to see a little bit more activity growth to see pricing take a bigger leg higher into 2022? Jeff Miller: Yeah. As I said, it's not across the board. It is a process, but we are seeing net pricing in certain pockets and certain things today, and I expect that that accelerates, as I said, into 2022. But, clearly, with frac ESG friendly equipment that is in very short supply, we have a leading position in dual fuel electric, tier 4 also. And so, in all those categories, that's what the market demands and that's an – structurally, because of our large footprint there, we have a structurally differentiated position, but that equipment isn't everywhere and that equipment is some under contract, some is not under – it's moving. I think what's important at this point is that we're negotiating up and not down, and that's sort of a different dialogue than what we've had. And that's what we're seeing today. So, do you see all of that in Q3? Absolutely not. But what you do is you see us on a journey now that's different than the one that we've been on. And that's where we are. Scott Gruber: Turning to the digital contract wins, which are great to see, couple of questions there on the impact on margins. First, just so we can dimension it. Do the digital revenues and margin also flow through D&E? Or when you have Completion and Production , does some of it hit C&P? More importantly, how do we think about the real timing and magnitude of the benefit to margins? Is there much of a benefit during the second half through the initial deployment and scaling up in places like Kuwait? Or is it more to come in 2022 and 2023? Particularly for D&E, it's been a segment where you guys have been pushing to structurally lift margins over the last couple of years. How do the digital wins in the digitization of the industry and Halliburton's participation really push where the D&E margin could go on a more normalized basis as we get deep into recovery? Jeff Miller: When we think about digital, digital margin impact is across the business. Obviously, the software sales and the cloud native apps are in D&E. But more broadly, digital capability affects the whole business. And so, that's behind our products, so tools like EarthStar and our SmartFleet, all of those are a byproduct of having digital capability in the company. In fact, the capacity to develop software at scale is pretty unique. And that is what allows that to happen. The third way we consume software, and this has an impact also on the entire business, is the ability to consume the solutions ourselves and reduce our own costs. So, I would argue a large part of our ability to, for example, last year, reduce the roofline by 50% was rooted in our ability to do things digitally that remove many steps and change the processes and took people out. That's why I'm careful how we describe that. I think that, clearly, it's a contribution to D&E. But I would say that the contracts we've described are all good contracts, but you ramp up – it might ramp up, they get started. It's a consultative process. And so, I would expect later this year or really more so into 2022 and beyond. I think these build one on top of another and become very sustainable over time, less of a sort of pop all at once, but sort of building into larger projects over time. Operator: Our next question comes from Ian Macpherson with Piper Sandler. Ian Macpherson: The one question that I had, Jeff, is when you look at double-digit trajectory for synchronized expansion for North America and international, just given the strong command that OPEC+ has over the oil market over the intermediate term, what type of call on US production growth are Ae you contemplating which underpins your North American outlook for the next couple of years? Jeff Miller: We think that some of what we've seen over the last couple of days, I think, lays out a path for OPEC. And so, that's, to a certain degree, defined. If we look at pent up demand for oil at least today – if we look up the pent up demand that we see for oil today, we're at 98 million barrels a day now, the economy feels more than 2 million barrels shut in, to me. In fact, it's probably 4 million barrels consumed in aviation alone. So, I think there's a normalized level of spare capacity that's expected. So then when we think, okay, North America, what happens there? Well, we're up 10% year-on-year. And I think the expectation is that production is largely flat for this year. I would expect that there would be a call of – is it 500,000 barrels, some number like that? Some level of growth that would be called on in 2022. That, the price clearly supports, which would then drive more activity for us, certainly, and we have – in that mix is stemming the decline curve that is always working on North America production. So, those are the things that underpin our outlook. Ian Macpherson: And then, staying on the domestic pressure pumping side, we're obviously beginning to see some of the smaller competitors announce firm plans and sort of abstract plans for renewing their fleets with clean fleet, but different iterations of it. In your view, is that coming earlier than you would like to see it? Or do you think that the market is ready to support the pricing and the returns for that equipment at the scale that we've already seen over the last few months? And should we expect Halliburton within your 5% to 6% CapEx and below to march along at that same industry cadence with new clean fleet investment? Jeff Miller: Well, if we always look at our – we're fortunate today that we have one of the youngest fleets in the market. And as we replace equipment, we also have a large fleet. And so, as we systematically replace equipment, we have a choice to make. So, what type of equipment do we replace it with? And it's a combination, generally, of electric or dual fuel. But I think that our steady drumbeat of replacements and within our 5% to 6% of capital spend, we're able to meet demand and also at terms that are adequate. I think those two things have to be in place. Fortunately, we're in a position where we are able to deliver those things today. I say today, but today and over the near term from operations. Remains to be seen the pace at which all of that can happen in the market, given where sort of broadly that market stands today in terms of returns. So, without the returns, it's not – we wouldn't be investing in these types of equipment at all. Fortunately, we're in a position to do so and do it ratably along with our sort of planned replacement cycle. Operator: Our next question comes from Neil Mehta with Goldman Sachs. Neil Mehta: Congrats on a good quarter here. I have a really high level question. It's been a tough 10 years for the energy sector, but it's been an even tougher period of time for oil services relative to the rest of energy. Jeff, as a leader of this industry, what do you think the key is to attract the generalist investor back into this vertical within the space? Do you think it's about earnings execution? Is it about returns on capital? Or is it about returning excess capital to shareholders, so return of capital? Jeff Miller: It has to be all three of those. But I think it starts with some clarity around what is the trajectory over time that's sustainable as opposed to all of the ups and downs that we seem to have had sort of intra-period gyrations. And I think what's shaping up today, as I've described it, is a more sort of predictable, sustainable trajectory. And that's what we see out over the next couple of years and really beyond that, just because I think we've been through a lot of the over-capitalization. There's been under investment for a long enough period of time, particularly in the resource that, as demand recovers, which it will recover, I think there's a solid opportunity set for our services. Now, within that, obviously, I have a view that – and believe firmly that our competitive positioning is different also. And because of that, Halliburton has tools, whether it's our value proposition, our technology or sort of our portfolio and how it's placed to maximize value in North America, which we've always been clear on. We want to maximize value in North America and grow profitably internationally. And I think both those macros are set up perfectly for doing that. And so, as a generalist, there's some clarity around where we're going. We've got some track record of where we've been, where we're going. And I think that sets up well for a generalist investor. Neil Mehta: The follow-up on that on on return of capital, if you look at the energy sector, S&P energy sector, it trades at a 4.5% dividend yield. How do you think about Halliburton's value proposition on a multi-year basis around return of capital, whether it's through dividends or through buybacks? Do you ultimately need to be offering a total return of capital yield that's far in excess to the market, given the questions about the terminal value of the business? Lance Loeffler: Neil, I think it's a great question. And I think that we're going to continue to reevaluate what it means for us in the near term as we continue to grow into this recovery. We certainly believe that we need to improve those yields today on a dividend basis. But we're going to continue to look at and get comfortable with the forward free cash flow profile, what we think that this business, we believe, can generate in these out years that Jeff discussed. But, clearly, we believe it requires improvement from where we are today. Jeff Miller: Maybe one follow on to that, Neil. Strategically, we have changed the cash flow profile of our business, and that is the shift from 10%, 11% of revenues going into capital down to the 5% to 6%. But what that does is that sets Halliburton up to do those things. And so, I think it's our view and the change in our cash flow profile certainly aid that process. Operator: Our next question comes from Aaron JR with J.P. Morgan. Unidentified Participant: My first question relates to just the activity mix in the US. The privates have added more than 70% of the incremental rigs since the activity bottomed mid last year. I guess my first question is, what is your expectation around, call it, the mix of public company activity next year once some of the OPEC barrels are returned? And do you think that a higher mix of public company activity is – are you indifferent about that? Or do you think it's helpful to your revenue growth and margin opportunities relative to industry next year? Jeff Miller: I think we will always look for the best return opportunity for us. I'd say operators have not said anything about next year, and I'm not going to project what they might say. I think I have – we can see what the demand sort of looks like to us as we look out into next year. But I also think that every operator will make their own decisions around how they deploy their capital. And overall, a supportive commodity price, which we see creates headroom for our clients to do work and return cash to their shareholders, which is important for them to do. So, I think the improving commodity price and the structural sort of support that we will see in the commodity price makes all of that work as we go into 2022. Neil Mehta: Just my follow-up. We had a dynamic, particularly in the US, where budget exhaustion has led to some frac holidays which has obviously been a headwind. How is Halliburton looking to mitigate that risk as we approach the back half and the fourth quarter kind of given that dynamic? Jeff Miller: I think operators are going to do exactly what they said they would do. And we really haven't seen budget exhaustion, to this point haven't talked about it. And I think that is because operators are ratably doing exactly what they said they were going to do. So, I don't anticipate that we see any of that or much of that this year. And I'd say the other thing that we've done a lot of work to variabilize our business, such that when we see slowdowns or holds or anything else, we're able to respond to it very, very quickly as opposed to how we might have done it in the past. And that all is process change and really philosophy change, but it's working quite well. I think we'll have a solid sort of working through the balance of the year just because of the clarity that our clients have and are providing to us. Operator: Our next question comes from Connor Lynagh with Morgan Stanley. Connor Lynagh: I wanted to return to the multi-year outlook you guys gave. And basically, what I'm wondering is, certainly, I know you want to stick to the ranges you put out there for capital expenditures, but I would assume there's a certain degree of growth investment required to realize that. So, I was wondering if you could discuss just where you plan on allocating capital, what some of the big areas that you think are sort of priorities within the business over the next couple years here? Jeff Miller: I think that as we look out, I believe that we've got the opportunity to meet those expectations within the guidance that we've provided with respect to CapEx. I think there is growth CapEx in that sort of 5% to 6% range that we've provided. For example, if I look back over the last five years, asset turns have improved by 50%. That's strong improvement. But this is back to my commentary around strategically approaching capital efficiency. So, as we're very sharp around our R&D dollars, drive capital efficiency, our process drives capital efficiency, and those are the kind of results we see in terms of capital efficiency. And so, we will continue to drive that as the market expands over the next couple of years. And really, strategically, that becomes our operating process. And I expect we'll continue to do that. Connor Lynagh: Sort of similar question here. But just in terms of thinking about – particularly your labor pool, and I guess, your overhead in international markets, so certainly, you've right-sized in select areas, but you're anticipating a pretty big recovery here. I guess I'm just curious, it seems like in the outlook there's an acceleration in incremental margins as you get out into some of the later years. Is that because you have sort of excess labor that's going to be more highly utilized, is that because of the pricing that you're anticipating. Just curious what the what the big drivers are of that improvement in incremental margins? Lance Loeffler: Look, Connor, I think it's less about cost savings structurally. I think it's more about volume of activity combined with price. So, it's volume, utilization and pricing improvement throughout the course of that journey that Jeff sort of outlined. Jeff Miller: We're always working on costs. We've got a continuous improvement program where we're constantly driving, managing costs down. And I believe that that program and our approach to that is adequate. As we grow, we will manage the cost. But clearly, we expect to see tightness in pricing and more activity over time that all drives incrementals. Operator: That concludes the question-and-answer session. I'd now like to turn the call back over to Jeff Miller for closing remarks. Jeff Miller: Before we end the call, let me close with this. We are in the early innings of an unfolding multi-year upcycle that presents growth opportunities for Halliburton internationally and in North America. Those opportunities match Halliburton's unique customer-focused value proposition and our position as the only fully integrated energy services company in both international and North American markets. As this unfolds, we remain committed to driving returns and free cash flow for Halliburton shareholders. I'm optimistic about what lies ahead and look forward to speaking with you next quarter. Shannon, please close out the call. Operator: 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.
