Halliburton Company Earnings Are Strong but Point to a Challenging 2015

By Fool.com

Oil-field service giant Halliburton Company reported fourth-quarter results before the opening bell this morning. While its results were strong, the company's outlook wasn't so cheery. Instead, the company braced investors for what it fears will be a challenging year.

Drilling down into the resultsHalliburton's income from continuing operations was $1 billion, or $1.19 per share in the fourth quarter. This was $0.09 per share higher than analysts were expecting and unmoved from what the company reported last quarter. However, that headline number does exclude restructuring charges as well as an acquisition-related charge for the Baker Hughes deal. Once those adjustments are made, the company's reported income from continuing operations was a bit lower, at $900 million, or $1.06 per share. That's also below the $1.1 billion, or $1.33 per share it reported just last quarter. Still, the company's earnings were solid especially considering the dramatic drop in oil prices during the quarter.

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Revenue was also strong in the quarter as the company reported $8.8 billion, which was in line with estimates and up slightly from the $8.7 billion the company reported last quarter. Halliburton's quarterly revenue actually set a new record thanks to the strength of its Middle East/Asia region. That division set a record for both revenue and adjusted operating income.

Warning signs aheadUnfortunately, that's where the good news ends, as the company doesn't expect its record-setting results to continue in 2015. CEO Dave Lesar commented on the shift Halliburton is seeing by saying:

That restructuring charge was the result of the company laying off 1,000 workers as it looks to keep its workforce aligned with expected industry activity. However, this could very well be just the first of many rounds of layoffs as smaller rival Baker Hughes, for example, has already reduced its headcount by 7,000 as it responds to falling rig counts.

The company could see a lot of pressure in its North American segment over the next year as shale drillers have been cutting capex spending by 50% over 2014 levels. So, while the segment's revenue was flat sequentially, given the dramatic drop in spending, it could be quite the drag on Halliburton, as more than half of the company's revenue and about two-thirds of its total operating income flow out of this segment.

Meanwhile, the company's attention over the next year will be focused on completing and integrating the Baker Hughes acquisition. It still has a lot of work to do, as the deal isn't expected to close until the second half of the year. There is also the possibility that the deal could be delayed, which could cause the company to incur more acquisition-related costs than expected and mute 2015 results.

Investor takeawayOverall, Halliburton delivered excellent fourth-quarter results. However, the company expects future results to be challenged by the turmoil in the oil markets as drilling activity in the U.S. is expected to dramatically drop over the next year. Further, the company has a lot on its plate with the Baker Hughes deal still months away from closing, which could add to its challenges in the year ahead. That said, Halliburton is looking past the challenges of 2015 -- its deal for Baker Hughes is focused on creating the world's top oil-field service company for the long haul.

Matt DiLallo has no position in any stocks mentioned, though, Halliburton certainly looks attractive for long-term investors.The Motley Fool recommends Halliburton. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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