Halliburton Earnings: The Key to Future Growth

Halliburton (HAL 0.34%) will release its quarterly report next Monday, and judging from the stock's gains over the past year, investors are convinced that the company has fully recovered from the Gulf oil spill tragedy three years ago. Yet the question remains whether the Halliburton earnings report will show the growth that investors need to see to justify their optimism.

Halliburton is a big player in the U.S. domestic oil-services industry, with a substantial presence both in undersea drilling and on shore. That left the company exposed to production slowdowns when land-based exploration and production companies were suffering from low natural-gas prices, but now that those prices have started to rise, greater activity could boost the oil-services company's revenue going forward. Let's take an early look at what's been happening with Halliburton over the past quarter and what we're likely to see in its quarterly report.

Stats on Halliburton

Source: Yahoo! Finance.

What will the Halliburton earnings report say about growth?
In recent months, analysts have raised their earnings views about Halliburton, raising their June-quarter estimates by $0.02 per share, and their full-year consensus by almost 6%. The stock has responded quite favorably, rising more than 13% since mid-April.

Halliburton's share-price gains began early in the quarter after the company reported its first-quarter results. Although the company took a massive $637 million charge related to the 2010 Gulf disaster, Halliburton managed to hold its own on the domestic front in a weak environment. Internationally, the company cleaned up, with sales rising 21% and at more than twice that rate in the Eastern Hemisphere. But, perhaps most importantly, Halliburton looked favorably on the near-future for domestic drilling, noting gains in margins, and some pricing power expected to enhance profitability from rising well production. That's consistent with the results we saw from Schlumberger (SLB -0.89%) this morning, as the industry leader beat earnings expectations with a nearly 50% jump in its net profits, coming largely from overseas activity, but also posting a 2% revenue increase in North America.

One challenge for Halliburton, though, is that exploration and production companies are getting savvier about their expenses, getting more efficient with drilling practices. Competitor Nabors Industries (NBR -0.65%) cut its second-quarter guidance recently, citing such efficiency gains as having reduced demand for North American pressure-pumping equipment and services. If those trends carry throughout the sector, it could weigh on Halliburton's results.

Still, international opportunities represent a huge part of Halliburton's future growth. In China, Halliburton and Schlumberger have both gained footholds in the nascent shale-gas industry there, holding out their expertise to try to woo local players in the Chinese energy sector. Meanwhile, deepwater plays around the world could help Halliburton immensely, as deepwater rigs continue to command high prices from companies seeking their fortunes in large oil finds in hard-to-reach places in the world's oceans.

One smart efficiency move of its own that Halliburton made in the past week is its deal with Nuverra Environmental Services (NESC) to provide water-recycling services for its hydraulic fracturing practices. By reusing water in dry areas like the Bakken shale play, Halliburton should get cost savings and appease environmentally minded critics of fracking.

In the Halliburton earnings report, watch for the breakdown of the company's results between domestic and international operations, as well as across its onshore and deepwater business. Identifying where the best growth opportunities are will be vital for Halliburton to keep its earnings moving in the right direction.

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