In about a week oil-field services giant Halliburton Company (NYSE:HAL) will report its third-quarter results. All eyes will be on that report because the company is one of the few that really has its finger on the oil market. Here's what they want to hear the company say, either in its earnings release or on its conference call.
1. "We're still on track with the Baker Hughes (NYSE:BHI) deal."
Halliburton bet a lot on its ability to acquire rival Baker Hughes, not only in winning investor approval for the deal, but just as importantly gaining the approval from regulators. That hasn't been easy as the company has had to sweeten the pot, so to speak, by offering up more asset sales to try to win approval. As a result, the timing on the proposed closing of the deal has been pushed back, again, for a few more weeks and now would close on Dec. 15 at the earliest if the deal is approved.
What investors will want to hear the company say is that it remains very confident that the deal will indeed go through. There have been reports that the company is facing a lot of scrutiny over the deal so it will be key to have management exude confidence that it believes it has the right combination of asset sales to appease regulators. For example of what investors want to hear, last quarter CEO Dave Lesar said on the conference call that it remains, "fully committed to our target of closing the acquisition in late 2015, though the acquisition agreement does provide that closing can be extended into 2016, if necessary." That confidence needs to be just as apparent this quarter or it will fuel worries that the deal might not close.
2. "We're managing the downturn rather well."
In addition to managing a very complex acquisition, Halliburton is also managing through a very tough oil market. So far it has done an admirable job as it beat earnings estimates in both quarters this year. Ideally, it will make it three in a row by managing to keep its margins from falling too far this quarter.
Last quarter the company was able to significantly outperform the 40% drop in the North American rig count as demonstrated by the fact that its revenue in North American was down just 25%. It did so, according to Lesar, because its "decremental margins this quarter were better than previous cycles," which he attributed to "aggressive cost-reduction initiatives." Investors will want to hear him say something similar this quarter.
3. "We see some green shoots in the oil market."
In addition to those more Halliburton specific items, investors will also want to hear about what the company is seeing in the oil market. Last quarter Lesar warned that the third-quarter would be tough as he saw a 5% decline in the rig count leading to revenue and margin pressure for Halliburton and its peers. However, he also said that he thought that the third quarter might possibly be the bottom of the cycle. Further, he saw the possibility for a "meaningful activity increase ... sometime in 2016."
We'd like to hear him confirm that he's starting to become a bit more optimistic as we head into 2016. That could be from what he's heard from customers or the fact that it is starting to see a pickup in demand for its services. As such, any indication that there's a bit more visibility on the horizon would be a welcomed sight during a downturn where limited visibility has ruled the day.
A lot of investors will be tuning in to hear what Halliburton has to say this quarter. They really want to hear that its Baker Hughes deal is on pace to close, that it's managing the downturn well, and that it sees the early signs of a recovery on the horizon. Hearing all three would give investors much more confidence that things are looking up for Halliburton and the oil market in general.