By Stephen D. Simpson, CFA
April 21, 2006
At this rate, I imagine that at least a few Halliburton (NYSE: HAL) shareholders can't wait for the IPO of the KBR construction/logistics business. If nothing else, it might stop KBR from dragging down the great results in Halliburton's energy business.
Even with the ol' ball and chain in tow, the company managed to have a decent first quarter. Reported revenue was up only 8%, blending KBR's negative 13% result with the energy business's 35% top-line growth. Operating income tells more of the tale, since KBR's margins are so pathetic; overall operating income was up 31%, with the energy business up 42% and KBR down 34% as reported.
Since KBR won't be part of Halliburton forever (though who knows how long the IPO process will take), I'll discuss it only briefly. Backlog was down this quarter, and the government/infrastructure business results were soft, while energy and chemicals showed some growth.
On the energy side, it's all systems go for another quarter. Growth in production optimization was sluggish, but management indicated that at least some of that could have been due to a greater number of drydocked vessels in the quarter. Margins continue to strengthen in the energy-services sector, and there hasn't yet been any reason for the quality companies to start competing on price (other than seeing who can get away with charging the most, perhaps). In addition, the energy services business isn't always an either/or competition. For instance, Petrobras (NYSE: PBR) does business with both Halliburton and Schlumberger (NYSE: SLB).
One other point I found interesting: Halliburton management apparently polled its customers, discovering that none intends to reduce drilling activity until or unless natural gas seems poised to dip below a range of $4.50 to $5 per MCF (thousand cubic feet) and stay there. That's good news for Halliburton, and certainly good news for gas-sensitive land drillers like Grey Wolf (NYSE: GW) and Nabors (NYSE: NBR).
Most of these larger energy-services companies have regained the market value they lost in the natural gas-induced swoon a few months back. BJ Services (NYSE: BJS) hasn't, though, so perhaps there's a relative value call there. I'm still a believer in the energy-services space overall, and I'm betting Halliburton will probably continue to perform well for the immediate future.
For more Foolish thoughts on the roughneck world:
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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