Halliburton Earnings: Will They Follow Schlumberger Higher?

Halliburton (HAL 1.11%) will release its quarterly report on Tuesday, and investors have expressed some concerns in recent months about the oil-services company's future prospects, bidding share prices down from their near-record high levels. After strong earnings from Schlumberger (SLB -2.14%) last week, investors want Halliburton earnings growth to show similar gains, but the company will still have to work hard to outperform peers including Baker Hughes (BHI) and offshore specialist Transocean (RIG 2.16%).

Halliburton has traditionally set itself apart from Schlumberger by concentrating on the key North American market, which proved to be a prescient move when the boom in unconventional oil and gas production flared up during the 2000s. Now, though, greater expansion opportunities abroad have given Schlumberger the inside track to further growth, forcing Halliburton to answer with its own global aspirations. Can Halliburton outperform Baker Hughes and Transocean with its successful efforts? 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 report.

Source: Arne Hückelheim, via Wikimedia Commons.

Stats on Halliburton

Source: Yahoo! Finance.

How fast can Halliburton earnings grow?
In recent months, analysts have cut their views on Halliburton earnings, reducing fourth-quarter estimates by $0.12 per share and cutting a dime per share from their full-year 2014 projections. The stock has plateaued, falling 1% since mid-October and more sharply from higher levels in November.

Halliburton's third-quarter report showed some of the pressures that the oil-services giant is facing right now. Even though global revenue rose 5%, pushing net income higher by 24%, Halliburton's shares tumbled on the day after the announcement. Somewhat surprisingly, revenue in North America actually dropped from year-ago levels, while gains in the Eastern Hemisphere segments of Europe/Africa and Middle East/Asia drop overall sales growth. Nevertheless, operating income continued to come predominantly from North America, driving about 60% of Halliburton's total in contrast to Schlumberger's more diversified global reach. That's consistent with what Baker Hughes saw as well, with record revenues in its Middle East and Asia-Pacific segment.

More recently, Schlumberger's earnings report late last week suggests that Halliburton needs to continue emphasizing its international prospects. Schlumberger saw international revenue rise 11%, beating its overall gains of 8.4% even though the company suffered shutdowns in Iraq due to violent uprisings there. Nevertheless, investors still expect faster growth from Halliburton, as its lower forward earnings multiple attests.

In addition, Halliburton needs to recognize the value of offshore drilling. Schlumberger's results included strong demand from its projects in the Gulf of Mexico, which offset poorer results onshore. Similarly, Transocean has seen huge interest in its drilling rigs both in the Gulf and around the world, as a big ramp-up in offshore projects has driven demand especially for deepwater-capable facilities that allow operators to take advantage of discoveries in hard-to-reach areas of the ocean floor.

Still, Halliburton expects North America to play a key role in 2014 and beyond. Its Frac of the Future and Battle Red initiatives both center on the region, with Battle Red emphasizing improvement in its service-delivery model while its Frac of the Future seeks to focus on greater productivity from oil and gas plays. If anticipated demand for energy products in the U.S. rises as a result of manufacturers moving operations to take advantage of low prices, then Halliburton's continued emphasis on the region could prove to be full of foresight.

In the Halliburton earnings report, watch to see if it gets its growth from the same sources as Schlumberger. Halliburton needs to walk its own path, but better results across the industry will likely come from similar places. To outpace Baker Hughes and Transocean, Halliburton needs to make sure it's in the right place at the right time.

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