Breaking Down Baker Hughes Company (BKR) Financial Health: Key Insights for Investors

Understanding Baker Hughes Company (BKR) Revenue Streams

Understanding Baker Hughes Company’s Revenue Streams

The revenue generated by the company is categorized into two primary segments: Oilfield Services & Equipment (OFSE) and Industrial & Energy Technology (IET). Below is a detailed breakdown of these revenue sources.

Revenue Breakdown by Segment

Year-over-Year Revenue Growth Rate

For the first nine months of 2024, the company reported a total revenue of $20,465 million, compared to $18,671 million in the same period of 2023, marking an increase of $1,794 million or 9.6%.

Contribution of Different Business Segments to Overall Revenue

In the first nine months of 2024, the contributions from each segment are as follows:

Significant Changes in Revenue Streams

In Q3 2024, the OFSE segment experienced a slight increase in revenue driven primarily by the Subsea & Surface Pressure Systems, which saw a revenue increase of $151 million compared to Q3 2023. In contrast, the Well Construction and Completions segments saw declines of $77 million each.

The IET segment showed strong growth, particularly in the Gas Technology Equipment and Climate Technology Solutions categories, which increased by $54 million and $127 million, respectively.

Geographical Revenue Distribution

For the first nine months of 2024, the geographical breakdown of revenue was:

A Deep Dive into Baker Hughes Company (BKR) Profitability

A Deep Dive into Baker Hughes Company's Profitability

Profitability metrics are crucial for assessing the financial health of a company. This section explores the profitability metrics of Baker Hughes Company (BKR) as of 2024, focusing on gross profit, operating profit, net profit margins, trends over time, industry comparisons, and operational efficiency.

Gross Profit, Operating Profit, and Net Profit Margins

For the third quarter of 2024, Baker Hughes reported the following profitability metrics:

• Total Revenue: $6,908 million
• Cost of Goods Sold: $3,581 million
• Gross Profit: $3,327 million
• Operating Income: $930 million
• Net Income: $766 million
• Gross Margin: 48.2%
• Operating Margin: 13.5%
• Net Profit Margin: 11.1%

In comparison to the same period in 2023, the gross margin increased from 50.0% to 48.2%, while the operating margin improved from 10.7% to 13.5%. The net profit margin also saw an increase from 7.9% in 2023 to 11.1% in 2024.

Trends in Profitability Over Time

Analyzing profitability trends over the first nine months of 2024 compared to the same period in 2023:

Comparison of Profitability Ratios with Industry Averages

When comparing Baker Hughes' profitability ratios with industry averages, we observe the following:

• Gross Margin: Baker Hughes at 48.2% vs. Industry Average of 45%
• Operating Margin: Baker Hughes at 13.5% vs. Industry Average of 12%
• Net Profit Margin: Baker Hughes at 11.1% vs. Industry Average of 10%

This indicates that Baker Hughes is outperforming the industry average across key profitability metrics.

Analysis of Operational Efficiency

Operational efficiency can be gauged through cost management and gross margin trends. For the first nine months of 2024:

• Cost of Goods Sold: $10,763 million, up from $9,704 million in 2023
• Selling, General, and Administrative Expenses: $1,873 million, down from $1,977 million in 2023
• Restructuring Charges: $21 million, significantly reduced from $161 million in 2023

The reduction in selling, general, and administrative expenses by 5% year-over-year reflects effective cost optimization initiatives. Additionally, the substantial decrease in restructuring charges indicates improved operational stability.

Conclusion

Profitability metrics for Baker Hughes Company demonstrate a solid financial position, with significant improvements in key areas such as operating income and profit margins. The company remains competitive within its industry, showcasing strong operational efficiency and effective cost management strategies.

Debt vs. Equity: How Baker Hughes Company (BKR) Finances Its Growth

Debt vs. Equity: How Baker Hughes Company Finances Its Growth

As of September 30, 2024, Baker Hughes Company reported total debt of $6,036 million, which includes both short-term and long-term debt components. The breakdown is as follows:

The company’s debt-to-equity ratio stands at approximately 0.37 as of September 30, 2024, calculated using total equity of $16,343 million. This ratio is below the industry average of approximately 0.5, indicating a conservative leverage position compared to peers in the oil and gas sector.

In recent activity, Baker Hughes issued $1.1 billion in new debt to refinance existing obligations and fund capital expenditures. The company's credit ratings are currently rated Baa2 by Moody's and BBB by S&P, reflecting stable outlooks based on the company's solid cash flow generation and manageable debt levels.

For the first nine months of 2024, Baker Hughes maintained a balance between debt financing and equity funding. The company repurchased 15.0 million shares for a total of $476 million while also paying dividends amounting to $628 million. This demonstrates a commitment to returning capital to shareholders while managing debt levels effectively.

As of September 30, 2024, the company's liquidity position is robust, with cash and cash equivalents totaling $2,664 million, which enhances its ability to cover short-term obligations and invest in growth opportunities.

The following table summarizes the key debt and equity metrics for Baker Hughes:

Assessing Baker Hughes Company (BKR) Liquidity

Assessing Liquidity and Solvency

Current and Quick Ratios

The current ratio for the company as of September 30, 2024, stands at 1.30, calculated as current assets of $16,568 million divided by current liabilities of $12,790 million. The quick ratio is approximately 0.93, computed using current assets minus inventories ($11,314 million) over current liabilities.

Analysis of Working Capital Trends

As of September 30, 2024, the working capital is $3,778 million, reflecting a slight increase from $3,310 million at December 31, 2023. This indicates a positive trend in liquidity management.

Cash Flow Statements Overview

The cash flow statements for the nine months ended September 30, 2024, report the following:

Potential Liquidity Concerns or Strengths

As of September 30, 2024, the company holds cash and cash equivalents of $2,664 million, showing a slight increase from $2,646 million at the end of 2023. However, $785 million of this cash is held in countries with currency controls, limiting liquidity flexibility. The company also has a $3.0 billion committed unsecured revolving credit facility maturing in November 2028, with no borrowings as of the latest reporting date.

Is Baker Hughes Company (BKR) Overvalued or Undervalued?

Valuation Analysis

As of September 30, 2024, the following key valuation metrics are relevant for assessing the financial health of the company:

• Price-to-Earnings (P/E) Ratio: 42.15
• Price-to-Book (P/B) Ratio: 2.35
• Enterprise Value-to-EBITDA (EV/EBITDA) Ratio: 20.67

Over the past 12 months, the stock price has exhibited the following trends:

The dividend yield and payout ratios are as follows:

• Dividend Yield: 2.1%
• Payout Ratio: 38.5%

Analyst consensus on stock valuation indicates:

• Buy: 10 analysts
• Hold: 5 analysts
• Sell: 2 analysts

The following table summarizes the financial performance for the first nine months of 2024 compared to the previous year:

Key Risks Facing Baker Hughes Company (BKR)

Key Risks Facing Baker Hughes Company

Industry Competition: The oil and gas sector is characterized by intense competition, particularly in the oilfield services and equipment segment. As of September 30, 2024, the company reported a revenue increase of only $12 million in the oilfield services and equipment segment compared to the previous year, indicating pressure on margins due to competitive pricing.

Regulatory Changes: The company operates in a heavily regulated environment, subject to various local and international laws. Compliance costs can be substantial, and any regulatory changes could adversely affect operations. The anticipated income tax payments for 2024 are projected between $900 million and $950 million.

Market Conditions: Global geopolitical uncertainty continues to influence oil and gas markets. The worldwide rig count was 1,743 for the nine months ended September 30, 2024, a decrease of 5% compared to the same period last year, primarily due to a 15% decline in the U.S. rig count.

Operational Risks: The company faces operational risks, particularly in managing supply chain constraints. The tightness in the aeroderivative supply chain has been highlighted as an ongoing concern affecting operational efficiency.

Financial Risks: As of September 30, 2024, the company had $785 million in cash held in countries with currency controls, which could limit financial flexibility. The net interest expense for the first nine months of 2024 was $143 million, which includes interest income of $74 million.

Strategic Risks: The company's strategic initiatives, including investments in new energy solutions, are subject to market acceptance and regulatory approval. As of September 30, 2024, the Remaining Performance Obligations (RPO) totaled $33.4 billion, with significant contributions from gas technology and industrial technology.

Mitigation Strategies: The company has undertaken cost optimization initiatives, which resulted in a decrease in selling, general, and administrative expenses by $104 million or 5% in the first nine months of 2024 compared to the previous year. Additionally, the company continues to monitor and assess operational risks to ensure adaptability in changing market conditions.

Future Growth Prospects for Baker Hughes Company (BKR)

Future Growth Prospects for Baker Hughes Company

Analysis of Key Growth Drivers

In 2024, Baker Hughes Company is focusing on several growth drivers, including product innovations, market expansions, and strategic acquisitions. Notably, the company has reported a revenue increase of $1,794 million, or 10%, to $20.5 billion for the first nine months of 2024 compared to the same period in 2023.

• Product Innovations: The company's Industrial & Energy Technology (IET) segment saw a revenue increase of $1,442 million, or 20%, driven mainly by Gas Technology Equipment and Climate Technology Solutions.
• Market Expansions: International revenues reached $8,773 million, a 5.6% increase compared to the previous year, highlighting the success of market expansion strategies in Europe and Asia.
• Acquisitions: In 2023, Baker Hughes completed the acquisition of Altus Intervention for $301 million, enhancing its Oilfield Services & Equipment (OFSE) capabilities.

Future Revenue Growth Projections and Earnings Estimates

Revenue projections for Baker Hughes are optimistic, with expectations of continued growth driven by the ongoing recovery in oil and gas markets. The company anticipates capital expenditures to be approximately 5% of annual revenue, which is estimated to support growth initiatives.

For the full year 2024, analysts project earnings per share (EPS) to reach approximately $2.40, reflecting a significant increase from the previous year.

Strategic Initiatives or Partnerships That May Drive Future Growth

Baker Hughes is actively pursuing strategic initiatives to bolster its growth trajectory. Key partnerships in the LNG (Liquefied Natural Gas) sector are expected to enhance its market position, with ongoing projects projected to generate revenue in the range of $800 million.

Competitive Advantages That Position the Company for Growth

Baker Hughes boasts several competitive advantages that are likely to drive future growth:

• Technological Leadership: The company is recognized for its advanced technologies in gas and energy solutions, leading to increased customer demand.
• Diverse Portfolio: A comprehensive range of services across oilfield services, industrial products, and climate technology enables it to capture various market segments.
• Strong Financial Position: With cash and cash equivalents of $2.7 billion as of September 30, 2024, the company has substantial liquidity to fund growth initiatives.

Financial Performance Indicators

Recent financial performance data underscores the growth potential of Baker Hughes:

Article updated on 8 Nov 2024

Resources:

• Baker Hughes Company (BKR) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Baker Hughes Company (BKR)' financial performance, including balance sheets, income statements, and cash flow statements.
• SEC Filings – View Baker Hughes Company (BKR)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.