Baker Hughes Company — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; compared with Q1 2023 unless stated otherwise. Baker Hughes is an energy technology company operating through Oilfield Services & Equipment (OFSE) and Industrial & Energy Technology (IET). Amounts are in U.S. dollars.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $6.418 billion | $5.716 billion |
| Operating income | $653 million | $438 million |
| Operating margin | 10.2% | 7.7% |
| Income before taxes | $641 million | $760 million |
| Net income attributable to Baker Hughes | $455 million | $576 million |
| Diluted earnings per share | $0.45 | $0.57 |
| Cash from operating activities | $784 million | $461 million |
| Capital expenditures | $333 million | $310 million |
| Cash and cash equivalents at quarter-end | $2.717 billion | $2.646 billion at Dec. 31, 2023 |
| Total debt at quarter-end | $6.006 billion | $6.020 billion at Dec. 31, 2023 |
Revenue increased 12%. Goods sales were $3.999 billion and services sales were $2.419 billion. Operating income rose 49%, while attributable net income declined 21%. The filing does not present a consolidated gross-margin percentage. Segment operating income increased to $422 million for OFSE from $371 million and to $330 million for IET from $241 million.
Operating cash flow included $209 million of net working-capital cash generation; the company also reported $75 million of restructuring-related payments, primarily severance. Cash after capital expenditures was approximately $451 million. Dividends paid were $210 million, and the company repurchased 5.4 million shares for $158 million. The quarterly dividend was $0.21 per share.
Material changes and drivers
- Segment growth: OFSE revenue rose 6% to $3.783 billion, led by international activity; North America revenue was essentially flat. IET revenue increased 23% to $2.634 billion, primarily on higher Gas Technology Equipment volume.
- Profitability: Higher volume, pricing and cost-out initiatives supported both segments. Unfavorable mix and inflation weighed on results; IET also cited higher research and development spending.
- Prior-year comparison: Q1 2023 included a $392 million gain on equity securities, compared with a $52 million gain in Q1 2024. This largely explains why other non-operating income fell to $29 million from $386 million and why pretax income declined despite improved operating income.
- Restructuring, impairment and other charges were $7 million versus $56 million in Q1 2023. The prior-year charges mainly related to employee termination costs and segment reorganization; Q1 2023 also included $18 million of inventory impairment.
- Orders were $6.5 billion versus $7.6 billion a year earlier. Remaining performance obligations were $32.7 billion, including $29.3 billion in IET and $3.4 billion in OFSE.
Liquidity, debt and outlook
Total debt was $6.006 billion, implying net debt of approximately $3.289 billion against reported cash. The company had no borrowings under its $3 billion revolving credit facility and no commercial paper outstanding, and it reported compliance with debt covenants. Its next debt maturity was a $108 million debenture due June 2024. Cash held in jurisdictions with currency controls totaled $614 million; 71% of total cash was held outside the U.S.
- Management expects North American OFSE activity to remain relatively flat into Q2 2024, followed by a modest recovery in the second half. It expects solid 2024 growth in international OFSE activity.
- Management remains optimistic about the long-term LNG market and expects continued growth in new-energy solutions, while noting market expectations are subject to changing conditions. No specific full-year revenue or earnings guidance is provided in the filing.
- 2024 capital expenditures are expected to equal up to 5% of annual revenue. Anticipated 2024 income tax payments are $800 million to $850 million.
- Management cited geopolitical uncertainty, including the Middle East conflict, and ongoing tightness in the aeroderivative supply chain. It said the conflict had not materially affected operations as of the filing, but further escalation could affect the company.
- Other stated risks include oil and gas price and customer-spending changes, customer payment delays, foreign-exchange and cash-transfer restrictions, and potential cost or schedule exposure in consortium projects. Management said liquidity could be pressured by a significant revenue decline or cost increase.
Contingencies and unusual items
Off-balance-sheet arrangements, including surety bonds, letters of credit and guarantees, totaled approximately $5.1 billion. The company said it did not expect these arrangements to have a material effect on its financial position, results or cash flows. A long-running Nigerian project arbitration remains pending against certain subsidiaries; management said it could not predict its outcome. A securities class action involving C3.ai was dismissed as to Baker Hughes in February 2024, but plaintiffs filed an amended complaint reasserting claims against the company on April 4, 2024, after quarter-end; the outcome is uncertain. Management does not expect pending legal proceedings overall to have a material adverse effect, but notes that outcomes cannot be assured.
Key facts for investors to verify
- Whether IET project execution and international OFSE activity sustain revenue and segment-margin growth, given lower reported orders year over year.
- How much earnings and future comparisons are affected by fair-value changes in equity investments, including the ADNOC Drilling investment.
- Whether operating cash generation remains strong as inventory builds and the company funds capital spending, dividends and repurchases.
- The timing and resolution of the June 2024 debt maturity, and any developments in the Nigerian arbitration or revived C3.ai claims.
- Potential effects of geopolitical escalation, supply-chain constraints, and restrictions on access to cash held outside the U.S.