Everyone reading this was probably told at some point or another (most likely as a child) that if they simply told the truth, everything would be OK. Well, energy services company Baker Hughes (NYSE: BHI) told the truth on Friday. The company's reward was to get marked down over 3%, on a day that wasn't all that bad for other service stocks.
I doubt that many folks found themselves griping about the actual results for the second quarter. Revenue was up more than 24%, and while there were a few different ways to go about evaluating the concept of "operating profits" this time around, that metric was up considerably (by just about any method).
What seemed to spook everybody was management's discussion of the near-term outlook for the U.S. natural gas market. Simply put, the company said that if supply exceeded storage capacity, there would be less drilling and production activity. Seems pretty logical, right? I mean, if companies are producing so much of a product that nobody has room to store the stuff, of course prices would be expected to drop and producers would scale back production. That's basically how the whole supply and-demand thing is supposed to work.
However logical it may seem, that statement touches on the fears that a lot of folks have. It's not really widely reported, but oil and especially natural gas supplies and production have been pretty good of late. If we have a mild storm season and/or another mild winter, that could be bad news for natural gas pricing and drilling/production activity. And while producers like Chesapeake (NYSE: CHK), Devon (NYSE: DVN), or Ultra Petroleum (AMEX: UPL) have the option to mitigate pricing risk through hedging, it doesn't work that way for service companies.
I'm not really worried about Baker Hughes' longer-term book of business. In fact, management is apparently forecasting enough ongoing demand that they're slightly concerned about possible future shortages of specialty alloys (good news for a company like Brush Engineered (NYSE: BW), perhaps).
That said, I can't call Baker Hughes my favorite idea in energy services -- not when stocks like Weatherford (NYSE: WFT), Horizon Offshore, or perhaps even Schlumberger (NYSE: SLB) look a little more interesting
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Fool contributor
Stephen Simpson
has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
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