While the oil market has been in quite a prolonged slump, Halliburton Company's results have been surprisingly resilient. That's largely a credit to the company's ability to actively manage through the downturn thanks to the strong leadership of CEO Dave Lesar. Here's what he had to say about the company's past, present, and future on its third-quarter conference call.
1. As expected, the third quarter was weak, but we were pleased with the resultsLesar led off the call by saying,
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Halliburton's challenges in the third quarter were evidenced by a 6% sequential decline in its revenue, and steep drop in profitability. However, the company's performance was actually stronger than its largest peer, Schlumberger , which it was really pleased to see. In fact, its international business segment outperformed Schlumberger on revenue and margins, both sequentially and year over year. Despite all the headwinds and a potential distraction with trying to close the Baker Hughesmerger, Halliburton delivered as good a quarter as one could expect.
2. Our outperformance is due to a relentless focus on costsThe reason Halliburton is delivering better-than-expected results boils down to "a relentless focus on cost management," according to Lesar. Not only has the company cut its global headcount by 21% since the beginning of the year, but it is also using new technology to bring its costs down.
For example, its new Q10 Pump reduces capital costs on location by 25%, cuts on-site labor expenses by 30%, and reduces maintenance costs by 50%. Because of the costs savings, Halliburton continues to invest to bring new Q10 pumps online, and expects Q10s to make up 60% of its fleet by the end of this year, which is up from 50% currently.
3. Pressure pumpingSpeaking of pumps, one of the areas of Halliburton's business that's currently under the most pressure is its pressure-pumping-related product lines. Lesar noted on the conference call that the company is basically running its North American business at "near break-even levels." This is largely due to reduced activity levels and further price reductions, especially in its pumping-related lines.
While the pumping business is a concern right now, Halliburton President Jeff Miller ended the company's conference call on a positive note by saying that:
4. We don't have a lot of visibility right nowDespite its view that the market in pressure pumping and oil-field activity levels, in general, will eventually recover, Halliburton doesn't have a lot a visibility right now. Lesar said that:
Lesar is pretty honest that the fourth quarter could be a really tough one given the fact that most of his customers are out of money right now. That means activity levels could really drop off toward the end of the year. Investors should brace for another sequential decline in revenue and profitability next quarter.
5. Baker Hughes updateEven with that bleak near-term outlook, Lesar is very optimist about the company's future due, in part, to its pending merger with Baker Hughes. On the conference call, there were a few things that Lesar wanted to make clear about this acquisition. He said:
Despite some whispers in the market that Halliburton was having trouble gaining the approval of regulators, Lesar is confident that the company will close its Baker Hughes merger within the next few months. Further, he expects that the merger will still deliver the $2 billion in cost synergies that the companies had targeted when the deal was first announced almost a year ago, and that this will be on top of the cost savings the company has captured as a result of the downturn in the oil sector. Not only are those cost synergies compelling, but the scale and the breadth of product and service offerings that will result from this combination are why the company is so enthusiastic about closing this deal.
Investor takeawayHalliburton's CEO Dave Lesar made five things pretty clear. It's operating well through the downturn as it focuses on reducing costs, especially internationally. This is helping it overcome significant weakness in the U.S. pressure-pumping market. However, despite its resilience, the company doesn't have a lot of visibility into the fourth quarter. The only thing it's sure about is the fact that it's nearing the finish line on closing its still-compelling Baker Hughes merger.
The article 5 Things Halliburton Companys CEO Wants You to Know originally appeared on Fool.com.
Matt DiLallo has no position in any stocks mentioned. The Motley Fool owns shares of and 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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