Halliburton Company CEO Dave Lesar was pretty up-front with investors on the company's fourth-quarter conference call. He sees pain in the year ahead as the dramatic drop in oil prices will have a deep impact on the company over the next several months. Here's a breakdown of his market commentary.
Oil isn't the only thing dropping at the moment Lesar led off his market comments by saying:
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He notes that activity levels were pretty good in the fourth quarter, which is what drove the company's strong results. However, as the calendar flipped to 2015, the industry has really slowed down as the rig count has fallen rather dramatically over the past few weeks. He expects activity to continue to slow down as most of his customers have reduced their spending plans by 25%-30% over last year's level. That said, those cuts might not be the end, as some of its customers could cut their budgets even more if oil prices keep dropping, which Lesar pointed out:
Falling rig counts mean falling margins Lesar then went on to address how this slowdown in activity will impact Halliburton. He noted that producers are now actively seeking price discounts:
He notes that the company didn't experience any margin weakness in the fourth quarter, but that will not continue as customers are demanding price reductions. However, Lesar notes that these reductions shouldn't squeeze margins as deeply as past downturns have been known to do:
Lesar notes that the company entered the downturn on a high note as its current margins are strong thanks to operational efficiencies instead of price increases. Because of this, its margins shouldn't compress as deeply as during previous downturns.
Here's how bad things will get, and when they'll get betterHe then made some comments about where the industry is in the current cycle, and then notes when the industry's unease should begin to settle:
Lesar notes that the first quarter is always the worst as there is so much uncertainty. However, over time, the market reaches equilibrium again and settles down, which in his view will be the back half of the year. However, he goes on to note that the industry is in for some tough days:
He ends by noting that it will be a painful few quarters for the company and the industry, but he thinks Halliburton will come out ahead of the game when all is said and done. The company entered the downturn strong and should emerge even stronger.
The article Halliburton Company Sees Pain Ahead in 2015 originally appeared on Fool.com.
Matt DiLallo has no position in any stocks mentioned, but is starting to get interested in Halliburton despite the pain it sees ahead. 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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