So far, the general feeling with regard to the third-quarter earnings season has been that of disappointment. Quite a few companies -- including components of the S&P 500 and the Dow Jones, the widely quoted economic indicators -- have fluffed on expectations and guidance. Given the weak European outlook and the general pessimism prevailing in the markets, it makes good sense when companies work on becoming more internally efficient.
This should ultimately help them improve on margins as well as strategic flexibility, obvious features of solid businesses. Oil-services major Halliburton (HAL 3.84%) is currently working on such an initiative, the efforts of which should gradually be rewarding.
Operation "Battle Red"
In its latest earnings call, CFO Mark McCollum outlined the "Battle Red" project, which is a plan to shake up the company's back-office operations and improve quality of services. The project is specifically aimed at its fracking services value chain and intends to increase mobility and mobile technology in the field. By this, management aims to improve its business development, have the operations team better connected, and accelerate paper flow to "be more responsive to customer changes".
But, this isn't entirely surprising. Last year, Halliburton spent $23 million to beef up its North American service delivery and supply chain. To develop a "hyper-efficient" business model, management was focusing on offering intangible benefits that went beyond the normal 24-hour operations.
Investors must realize that business for oilfield services companies depend on cash flows generated by their customers, which are essentially the exploration and production (E&P) companies. Now profitability for these E&P companies depends on volatile oil and gas prices, which is why it's important for the oil services companies to increase internal efficiency to cushion against economic uncertainties. And that's why low-cost operators like Halliburton look impressive.
While weak economic conditions have proved to be a hindrance to growth, the oil services segment remains a pretty competitive space. With regard to the third-quarter results, industry top dog Schlumberger (SLB 1.63%) had a fairly decent quarter, while Baker Hughes (BHI +0.00%) missed expectations by a wide margin, thanks to a drop in rig count across locations. For Halliburton, while there's nothing really to trumpet about, things haven't been bad, either. In fact, international operations have picked up. In the primary "Completion and Production" segment, Latin America revenue grew 26% from last year's third quarter, while revenue from Asia picked up 21%. It's encouraging to see Halliburton expanding its global reach.
Foolish bottom line
Global demand for oil and gas, led by the emerging countries, is on its way up. Management at Halliburton seems to be preparing the company for a future that should be least affected by economic downturns. The lowest-cost service provider could turn out to be the "ultimate differentiator" in the industry.
