Halliburton Company (NYSE:HAL) reported its second-quarter results before the market opened on Monday. The oil-field service giant's results were surprisingly strong as it beat analysts' expectations despite a significant drop in the worldwide rig count. While the slump in oil and gas activity did have an impact on its financial results, that impact was much more muted than in previous downturns. This, along with its pending merger with Baker Hughes (NYSE:BHI), has the company well positioned to outperform when the recovery finally takes hold.

A look at the numbers
Halliburton reported revenue of $5.9 billion for the quarter. While that was down 26.6% year-over-year, it did manage to beat analysts' expectations by more than $100 million. Further, the decline in revenue was only 16% lower from the previous quarter despite the fact that the worldwide rig count slumped 26%.

Still, the revenue decline did have an impact on Halliburton's profitability. The company's income from continuing operations slipped to $380 million, or $0.44 per share, which was down from $418 million, or $0.49 per share, last quarter. However, those earnings were much stronger than analysts were expecting as the company beat the consensus estimate by $0.15 per share, which is just what investors wanted to see.

When we look closer at Halliburton's results we really see a tale of two oil markets. Internationally, the company's operations actually held up quite well, while North America was down significantly. That's clear from the chart below, which compares the sequential revenue of each segment.

 

Revenue

 

Change

Segment

2Q15

1Q15

%

North America

 $2,671

 $3,542

-25%

Latin America

 $767

 $949

-19%

Europe/Africa/CIS

 $1,095

 $1,097

0%

Middle East/Asia

 $1,386

 $1,462

-5%

Source: Halliburton Company press release. Chart by Author.

As that chart notes, Halliburton's international operations vastly outperformed its North American segment, with relatively solid flat performance in the Europe/Africa/CIS segment due to improvements in Eurasia and Norway. Meanwhile, the Middle East/Asia segment was only slightly lower, which isn't all that unsurprising given that OPEC nations in the Middle East, particularly Saudi Arabia, are pushing forward with more oil production despite the oil prices weakness. North American oil producers, on the other hand, have been significantly pulling back the reigns on capital spending as evidenced by the fact the rig count is down 40% over just the past quarter, however, despite that steep decline in the rig count Halliburton's revenue only dropped 25%.

Overall, Halliburton really did a solid job outperforming the weak market. In addition to its revenue vastly outperforming the plunging North American rig count, the company's margins haven't fallen as deeply as they had in previous downturns. This is partially due to the fact that the company has done a good job controlling its costs, which have helped to alienate some of the margin pressure that is coming from service pricing declines as demanded by its customers. The other big driver of margins is the fact that Halliburton is delivering higher margin technology to customers. 

A look at the outlook
Halliburton is holding up quite well, and is fairing much better than some of its weaker peers. The company expects this to continue, despite the fact that is sees the global oil market remaining transitional for the time being. As a result, its focus will remain on strong execution and delivering best-in-class service to its customers in order to keep its margins from slipping any further.

The other big driver for the company going forward is its pending merger with Baker Hughes. The company remains both enthusiastic and fully committed to closing the deal as it remains confident that it will be able to achieve nearly $2 billion in cost synergies from the deal even if the market doesn't improve. Further, it sees its combination with Baker Hughes putting the combined company in a position to outperform its peers once the oil market begins to recover.

Investor takeaway
While the oil market is having an impact on Halliburton's financial results the company is doing a good job to mitigate some of that impact. By keeping its costs at bay and focusing on delivering cost saving new technologies to its customers, Halliburton's margins are holding up much better than previous downturns. This, when combined with the looming Baker Hughes deal, is putting the company in a strong position not just to survive this downturn, but thrive when a recovery does take hold.

Matt DiLallo has no position in any stocks mentioned. The Motley Fool recommends Halliburton. The Motley Fool owns shares of Halliburton. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.