Bringing Baker Hughes and General Electric's oil and gas business together under the same roof was never going to be easy. This past quarter, Baker Hughes, a GE Company (NASDAQ:BKR) was forced to spend several hundred million on the integration and restructuring of the business again. Those charges put a damper on a quarter that was slightly better than the prior one, but there is still a lot of work to be done at this company. 

Here's a brief rundown of the company's most recent quarterly results, how they compare to BHGE's largest rivals that also recently reported fourth-quarter earnings, and what 2018 could have in store for the oil services giant. 

Long exposure shot of rig worker at a pumpjack in winter

Image source: Getty Images.

By the numbers

Metric Q4 2017 Q3 2017 Q4 2016*
Revenues $5.76 billion $5.37 billion $5.92 billion
Operating income ($92 million) ($122 million) ($22 million)
Earnings per share ($0.07) ($0.24) (N/A)
Free cash flow ($367 million) ($405 million) (N/A)

Data source: BHGE earnings release. *Pre-merger results on a combined business basis.

Even though BHGE beat revenue and adjusted earnings expectations this past quarter, these results weren't exactly inspiring. While revenue grew sequentially and the company narrowed its operating loss, it also reported that total orders were only up 1% compared to the prior quarter due to lower oil-field equipment and digital solutions orders. This stands in contrast to both Schlumberger (NYSE:SLB) and Halliburton (NYSE:HAL), which both reported growing revenue and improving margins despite the one-time charges related to changes in the U.S. tax code and writing down their businesses in Venezuela

On an operating income and margins basis, this quarter was a bit of a mixed bag. BHGE saw strong growth for oil-field services and a return to profitability for oil-field equipment thanks to well construction products mostly in North America. However, much of that growth was offset by declining sales in its turbomachinery and process solutions segment. Management noted that turbomachinery is a lumpy business that has a lot of liquefied natural gas-related work in the future, but many LNG projects have not yet received the green light because of a concern of production oversupply hitting the market over the next several months. 

Beyond that, BHGE took $490 million in various charges related to the merger, restructuring, and inventory impairments. Absent these charges, the company had adjusted operating income of $303 million. Cash flow was also decidedly weak this past quarter because of a large working capital build. As that working capital gets drawn down over time, it should flow back to the company as free cash flow.

BHGE operating income by business segment for Q4 2016, Q3 2017, and Q4 2017. Shows gains for oilfield services and oilfield equipment, but a significant decline in turbomachinery

Data source: BHGE earnings release. Chart by author.

What management had to say

In CEO Lorenzo Simonelli's statement accompanying the release, he discussed some of the progress management has made in integrating Baker Hughes and GE's oil and gas business into a single entity, and how he thinks the company will be able to reap the advantages of the merger in the coming year. 

[W]e continue to see improvement in activity as early indications of customer capital spending in 2018 are encouraging, particularly for our shorter cycle businesses. International activity is stabilizing, and we are seeing signs of activity increase both in the volume and size of tenders for new work as customers feel more confident about their operating costs and commodity price stability. The subsea market continues to be challenging and activity remains low, with prices continuing to be pressured. We expect activity in the LNG space to increase as customers position to make new capacity available in 2022 and beyond.

Our strategy is well suited to market conditions and customer needs. Reducing product and service cost, integrating equipment and service modules, and a focus on outcomes are all aligned with the goal of creating value for customers and for BHGE.

BHGE Chart

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What a Fool believes

The integration was supposed to create a monster of a company in the oil services business, but in the first six months since the merger, BHGE has been a little slow to complete the process. Investors should give management a little slack, though, because integrating a service provider and equipment manufacturer on this scale is pretty much unheard of in this business. 

The one thing BHGE has going for it is a massive cash pile. With $7 billion in cash on the books and $6.3 billion in total debt outstanding, the company has plenty of resources at its disposal to work through this integration process and still return capital to shareholders via dividends and share repurchases. Based on the statements from BHGE, Schlumberger, and Halliburton, 2018 should be a relatively good year for the oil services business. Hopefully, BHGE can get sort out its integration issues in time to take advantage of the opportunity.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.