BJ Services Heads in Its Own Direction

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I suppose there has to be at least one pooper at every party. In the case of the oilfield services group, the stick-in-the-mud this earnings season is BJ Services (NYSE: BJS).

While the services group has generally checked in with stellar performances, BJ's earnings fell 17% on the net income line to $189.4 million, or $0.64 a share, compared to $228.6 million, or $0.76 a share, in the same quarter of 2006. The company's revenue increased nearly 5% to $1.28 billion, from $1.22 billion last year.

It appears that BJ Services' pressure pumping operations in the U.S. and Mexico -- its bread and butter -- experienced a pricing-induced dip in revenue and operating margins. At the same time, while Canadian operations recovered from the spring breakup that hit the previous quarter, the area remained depressed on a year-over-year basis.

CEO Bill Stewart noted that the company's results were mixed in the international pressure pumping arena. The Middle East, Russia, and Latin America were specifically singled out as areas characterized by growth in the quarter. Conversely, restructuring charges and balance-sheet adjustments also reduced operating margins.

At the same time, the company achieved full-fiscal-year operating income growth of 10.6% in international pressure pumping and 23.5% in oilfield services. But pressure pumping operating income in the U.S./Mexico and Canada fell by 2% and 68%, respectively.  

Looking ahead, management expects the company to generate earnings of $2.35 to $2.45 per share for fiscal 2008. That guidance would represent as much as a 7.8% falloff from the $2.55 per share earned in 2007.

So BJ Services joins Schlumberger (NYSE: SLB) in reporting softer results in North America pressure pumping. But in the case of Schlumberger, its activities in the U.S., Mexico, and Canada represent a far smaller piece of its revenue pie than is the case with BJ, which generates more than 60% of its revenues just from pressure pumping in those areas. At the same time, Halliburton (NYSE: HAL) reported far more strength in its North American business, probably indicating market share gains by that company.

So, given BJ Services' Western Hemisphere concentration and its management's lower expectations, I'd be inclined to take a pass on the company unless the U.S. market for pressure pumping and related services displays distinct signs of recovery.

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