Baker Hughes' Misses Profit Target
Sharp fall in Gulf of Mexico activity also weighed on margins; expects higher fourth-quarter revenue and margins in N.America.
Baker Hughes Inc, the world's No.3 oilfield services provider, reported a lower-than-expected profit as political tensions disrupted activity in Libya and Iraq, and a sharp fall in drilling in the Gulf of Mexico weighed on margins.
Baker Hughes shares dropped more than 10 percent in premarket trading on Thursday as the company's profit fell short of market expectations for the first time in five quarters.
"We think Street expectations were that Baker Hughes was somehow more insulated from negative forces this quarter," Jefferies & Co analysts wrote in a note. The results "raise the specter of weaker-than-expected activity" in the Gulf of Mexico.
Shares of Halliburton Co, which like Baker Hughes gets about half of its revenue from North America, also fell 5 percent. Brent oil prices fell more than $1 a barrel on Thursday to a four-year low below $83 a barrel.
Schlumberger Ltd, the biggest of the trio, in contrast, relies more on international markets. Shares of the company, scheduled to report results after markets close on Thursday, were down more than 2 percent.
Baker Hughes' pretax profit margins in its operations in Europe, Africa and the Russia Caspian region slumped to 8 percent in the third quarter ended Sept. 30 from 17 percent a year earlier.
North America was the brightest spot in its operations due to increased demand for pressure pumping - used in hydraulic fracturing to extract oil and gas from shale rock - and a seasonal rebound in activity in Canada.
Higher spending by U.S. oil and gas companies on lucrative shale fields has boosted onshore drilling at the expense of costly offshore projects, such as those in the Gulf of Mexico.
Baker Hughes' North America revenue rose 10 percent, the highest among its five reporting divisions.
The company expects higher revenue and margins in North America in the fourth quarter due to a rebound in drilling activity in the Gulf of Mexico and improved profitability in its pressure pumping business.
Demand for pressure pumping, which analysts estimate account for a fifth of Baker Hughes's revenue, is recovering from a supply glut as drilling activity ramps up in Texas's Permian Basin and North Dakota's Bakken shale field.
The company also forecast increased revenue and margins in international markets, helped partly by year-end product sales and recent contract wins in Latin America.
Baker Hughes's net income rose 10 percent to $375 million, or 86 cents per share. Excluding items, its profit of $1.02 per share fell short of the average analyst estimate of $1.13, according to Thomson Reuters I/B/E/S.
Revenue rose 8 percent to $6.25 billion, narrowly missing the average analyst estimate of $6.29 billion.
Up to Wednesday's close, Baker Hughes shares had fallen nearly 28 percent in the past three months. Halliburton had fallen 29.5 percent while Schlumberger had fallen 23 percent.
Reporting By Swetha Gopinath and Kanika Sikka