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Baker Hughes Cooks Up a Quality Quarter

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Baker Hughes (NYSE: BHI  ) , the third-largest of the oil-field services providers -- behind Schlumberger (NYSE: SLB  ) and Halliburton (NYSE: HAL  ) -- brought last week to a close by essentially making a mockery of analysts' expectations for the second quarter of this year.

Clobbering expectations
For the period, the company delivered net income of $439 million, or $1.00 a share in net income, compared with $338 million, or $0.77 a share for the second quarter of 2011. The Wall Streeters who follow the company's stock were a whopping $0.22 low in their consensus forecast. Revenues for the quarter reached $5.33 billion, up from $4.74 billion a year earlier and higher than the analysts' expected $5.26 billion.

Looking at the company's geographic results, North America, which accounts for half of its revenues, saw its contribution to Baker Hughes' top line increase by nearly 13% year on year, similar to both Europe/Africa/Russia Caspian and Middle East/Asia. It also topped 11% for Latin America. Compared to the first quarter of this year, Baker Hughes CEO Martin Craighead noted that, "We achieved 2% sequential growth in operating income despite challenging market conditions in North America....Our international business delivered improved revenue and operating profit, driven primarily by outstanding performance in Europe and the Middle East."

And as CFO Peter Ragauss said on the company's post-release conference call with analysts, Baker Hughes' results in North America were specifically affected by:

  • Efforts to offset the effects of market volatility in the pressure pumping business. He admitted, however, that the company was unable to pass along the increased prices for guar beans, a component now famously used in fracking fluids. At the same time, the markets for pressure pumping in the gas basins -- where many operators began pulling in their horns -- and the prolific Eagle Ford play of South Texas were notably competitive.
  • North American results that overall were strong. Ragauss specifically noted solid results from the company's drilling systems, completion systems, and production product lines. And there were positives from the major shift from gas-centric drilling to an increased quest for oil, most notably in the pricing for the artificial lift and chemical lines.
  • The market was affected, as expected, by the usual spring breakup in Canada.

International progress
Internationally, the company, which long has tracked the numbers of working rigs both in North America and elsewhere, continues to expect the international count to expand by about 8% this year, versus 2011. That expectation excludes Iraq, which was added to the company's count in June. Year over year, the company managed a 12% increase in international revenue for the quarter.

Looking at specific operating achievements by Baker Hughes during the quarter, units related to the company's chemicals operations were awarded a five-year contract for water treatment and specialty chemicals in Canada's oil sands. In Mexico, the company garnered a pair of significant offshore contracts. Among other things, Baker Hughes will provide liner hanger equipment for both new and workover wells.

In Saudi Arabia, the company will deliver engineering, project management and integrated operations drilling for Saudi Aram for 75 wells in the Shaybah field. And in Iraq, Baker Hughes has completed a start-up of integrated operations that now involves the operation of six rigs.

Looking ahead, Craighead can only be described as cautious about the North American market. As he said, "Assuming natural gas futures fall back to $3 and WTI (West Texas Intermediate crude) holds above $85 a barrel, overall U.S. activity at year end should look similar to what we're seeing today."

He was, however, more optimistic about the international picture. In that context, he noted that, "We continue to make steady progress in the Eastern hemisphere as we ramp up activity in support of new contracts."

The Foolish bottom line
The results turned in by the major oil-field services companies have been solid, obviously including those of Baker Hughes. With only Weatherford International (NYSE: WFT  ) remaining on the reporting docket, I urge Foolish investors to seriously consider participating in this sector. If you're interested in delving further into the group, I also suggest you obtain a copy of Motley's free report, "3 Stocks for $100 Oil." You can do so by simply clicking here.

Fool contributor David Lee Smith doesn't own shares in any of the companies named in this article. Motley Fool newsletter services have recommended buying shares of Halliburton. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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