Baker Hughes' Earnings Up for First Quarter



Baker Hughes Inc. announced that income from continuing operations for the first quarter 2007 was $374.7 million or $1.17 per diluted share compared to $318.8 million or $0.93 per diluted share for the first quarter 2006 and $326.2 million or $1.02 per diluted share for the fourth quarter 2006.

Net income for the first quarter 2007 was $374.7 million or $1.17 per diluted share compared to $339.2 million or $0.99 per diluted share for the first quarter 2006 and $326.2 million or $1.02 per diluted share for the fourth quarter 2006.

Revenue for the first quarter 2007 was $2,472.8 million, up 20% compared to $2,062.0 million for the first quarter 2006 and up 1% compared to $2,452.7 million for the fourth quarter 2006.

Chad C. Deaton, Baker Hughes chairman and chief executive officer said, "Our profitability increased sequentially in the quarter due to recent actions taken to improve near term results. North America revenues were up 3% despite a weaker than expected rig count in Canada. Outside North America revenue reflected continued activity expansion offset by the seasonal decline in direct sales and Russia/CIS activity.

"In North America a colder than normal late-January and February has resulted in U.S. natural gas storage levels that, while higher than the recent 5-year average, are lower than previously expected. U.S. gas-directed drilling activity appears to be sufficient to satisfy modest growth in natural gas demand in the short term but may be insufficient to offset decreases in imports from Canada and the decline in the productivity of reservoirs being developed over the longer term. The company's additions in North America have been tempered to more closely match our expectations for slower near term growth and have resulted in improved margins. We will continue to monitor the North America market closely and will make additional adjustments, if necessary, while exercising care not to sacrifice our ability to respond to increased activity levels in the future.

"The global oil market remains strong and Baker Hughes is well positioned to benefit from increased drilling and completion activity around the world. We are focused on margin improvement in 2007 while maintaining the investment in people, technology and infrastructure necessary to respond to the increased demand for our products and services outside of North America, particularly in Brazil, Northern Africa, the Middle East, Russia and India."

During the first quarter 2007, debt increased $6.2 million to $1,081.3 million, and cash and short-term investments decreased $187.7 million to $916.0 million. In the first quarter 2007, the company's capital expenditures were $262.0 million, depreciation and amortization was $119.8 million and dividend payments were $41.5 million.

The company did not repurchase any shares of common stock during the first quarter of 2007 and as of March 31, 2007, the company had authorization remaining to repurchase approximately $345.5 million in common stock.

Oilfield Operations

Unless otherwise noted, all comments in this section refer to Oilfield Operations, excluding WesternGeco.

Oilfield Operations revenue was up 20% in the first quarter of 2007 compared to the first quarter of 2006, and up 1% sequentially compared to the fourth quarter of 2006. Operating profit before tax was up 26% compared to the first quarter of 2006 and up 1% sequentially (up 5% sequentially excluding the impact of the fourth quarter of 2006 accounting adjustment at Baker Atlas) in the first quarter of 2007 compared to the fourth quarter of 2006. The quarterly year-over-year incremental pre-tax margin (a non-GAAP measure of the change in operating profit before tax divided by the change in revenue) was 30%. The pre-tax operating margin (a non-GAAP measure of operating profit before tax divided by revenue) in the first quarter of 2007 was 25% compared to 24% in the first quarter of 2006 and 25% (24% excluding the impact of the fourth quarter of 2006 accounting adjustment at Baker Atlas) in the fourth quarter of 2006.

Drilling and Evaluation

Drilling and Evaluation revenue was up 19% in the first quarter of 2007 compared to the first quarter of 2006, and up 3% sequentially compared to the fourth quarter of 2006. INTEQ reported record revenue in the first quarter of 2007. Excluding a large fourth quarter direct sale, Baker Atlas would have been up 5% sequentially. Hughes Christensen revenue was impacted by a significant softening of the Canadian market. Operating profit before tax in the first quarter of 2007 was up 31% compared to the first quarter of 2006 and up 3% sequentially (up 9% sequentially excluding the impact of the fourth quarter of 2006 accounting adjustment at Baker Atlas) in the first quarter of 2007 compared to the fourth quarter of 2006. The quarterly year-over-year incremental pre-tax margin was 42%. The pre-tax operating margin in the first quarter of 2007 was 28% compared to 26% in the first quarter of 2006 and 28% (27% excluding the impact of the fourth quarter of 2006 accounting adjustment at Baker Atlas) in the fourth quarter of 2006.

Completion and Production

Completion and Production revenue was up 21% in the first quarter of 2007 compared to the first quarter of 2006 and down 1% sequentially compared to the fourth quarter of 2006. The seasonal drop in direct sales at Baker Oil Tools was offset by other revenue. Revenue at Centrilift reflected the seasonal drop in direct sales. Operating profit before tax in the first quarter of 2007 was up 19% compared to the first quarter of 2006 and down 2% sequentially compared to the fourth quarter of 2006. The quarterly year-over-year incremental pre-tax margin was 19%. The pre-tax operating margin was 21% in the first quarter of 2007, the first quarter of 2006 and the fourth quarter of 2006.

Corporate and Other

Corporate and other expense was up $5.3 million in the first quarter of 2007 compared to the first quarter of 2006. Sequentially, from the fourth quarter of 2006, corporate and other spending was down $15.2 million. We had higher than normal legal and compliance expense in the fourth quarter of 2006.

North America revenue increased 14% in the first quarter of 2007 compared to the first quarter of 2006 and increased 3% sequentially compared to the fourth quarter of 2006. Canadian activity was negatively impacted by deteriorating drilling economics and a spring break up which occurred approximately 2 weeks earlier than last year. Latin America revenue increased 25% in the first quarter of 2007 compared to the first quarter of 2006 and was flat sequentially compared to the fourth quarter of 2006 with strong Drilling and Evaluation growth offset by weaker sales at Centrilift. Europe, Africa, and CIS revenue increased 27% in the first quarter of 2007 compared to the first quarter of 2006, and increased 4% sequentially compared to the fourth quarter of 2006. Middle East and Asia Pacific revenue increased 22% in the first quarter of 2007 compared to the first quarter of 2006 and decreased 6% sequentially compared to the fourth quarter of 2006. Excluding a large fourth quarter direct sale and the previously announced decision to exit from sanctioned countries; Middle East Asia Pacific revenue would have been flat sequentially.

Outlook

The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially. Factors affecting these forward-looking statements are detailed below under the section titled "Forward-Looking Statements" in this news release. These statements do not include the potential impact of any expected stock repurchases, acquisition, disposition, merger, joint venture, the final outcome of the previously disclosed governmental investigations, or other transaction that could occur in the future.

  • Outside North America revenue for the year 2007 is expected to be up between 19% and 21% compared to the year 2006.
  • Assuming U.S. drilling activity for the remainder of 2007 remains flat with the first quarter of 2007, U.S. revenue is expected to be up 7% compared to the year 2006.
  • Corporate and other expenses, excluding interest expense and interest and dividend income, are expected to be between $235 million and $255 million for the year 2007.
  • Capital spending is expected to be between $1.0 billion and $1.2 billion for the year 2007.
  • Depreciation and amortization expense is expected to be between $500 million and $550 million for the year 2007.
  • The tax rate on operating results for the year 2007 is expected to be between 32% and 33%.

Baker Hughes is a leading provider of drilling, formation evaluation, completion and production products and services to the worldwide oil and gas industry.

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