It seemed to be a classic overreaction: Baker Hughes
According to management's prerelease, Baker Hughes will report earnings for the June-ending quarter in the range of $1.07 to $1.09 per share, compared with $1.17 per share in the previous quarter. That's about a dime short of expectations. The reason given for the decline was a "significant deterioration of activity and profitability" in Canada, particularly in the drilling and evaluation segment. The company further said that non-North American revenue and growth "was consistent with previously disclosed guidance."
So, Fools, let's look more closely at the situation with this large, Houston-based oilfield-services company. First, half of the quarter's earnings decline is attributable to the combination of a higher tax rate and increased repair and maintenance costs in its INTEQ division. And when I look at the Canadian rig count -- which is down by more than half from a year ago -- it seems clear to me that therein lurks the cause for the rest of the decline.
Further, we're in the midst of a substantial shift in the businesses of Baker Hughes and other major service companies such as Halliburton
For its part, Baker Hughes is a well-structured company with a solid management team and an important role in the vital energy services industry. It's played a meaningful part in a host of oilfield technological innovations, including the development of now-pervasive horizontal drilling. It's also a company that I don't believe deserved the pasting it received Friday. For these reasons, I'd conclude that it should be accorded careful attention by Fools with an appetite for sound energy investments.
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Fool contributor David Lee Smith owns shares in Baker Hughes and Halliburton, but not in the other companies mentioned. He welcomes your questions and comments. The Motley Fool does have a disclosure policy.