Halliburton Company — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Halliburton provides products and services to the energy industry through Completion and Production and Drilling and Evaluation segments. Unless otherwise noted, amounts are in millions of dollars.
Financial results
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $5,930 | $6,147 | $11,667 | $11,887 |
| Operating income | $303 | $789 | $668 | $1,143 |
| Net income attributable to Halliburton | $75 | $511 | $227 | $557 |
| Diluted earnings per share | $0.09 | $0.58 | $0.26 | $0.63 |
| Operating margin | 5.1% | 12.8% | 5.7% | 9.6% |
Q2 revenue declined 4% year over year, while operating income fell 62%. Results included $247 million of Q2 impairments and other charges; excluding those charges, operating income was $550 million. The six-month period included $308 million of such charges, compared with $265 million in 2018, which related to the Venezuela investment write-down.
- Revenue mix: Q2 Completion and Production revenue was $3,805 million, down 9%; Drilling and Evaluation was $2,125 million, up 7%. North America revenue declined 13% to $3,327 million; revenue increased in Latin America (19%), Europe/Africa/CIS (13%) and Middle East/Asia (9%).
- Cash flow: Six-month operating cash flow was $407 million, down from $1,528 million. Capital expenditures were $845 million; investing cash outflow was $811 million and financing cash outflow was $408 million. Cash declined $832 million to $1,176 million. Receivables, inventories and accounts payable together used $755 million of cash, which management attributed primarily to expected short-term customer payment delays and inventory build-up.
- Liquidity and debt: June 30 cash was $1,176 million and available committed revolving credit was $3.5 billion. Long-term debt was $10,307 million; total debt carrying value, including short-term borrowings and current maturities, was $10,329 million. Current assets were $11,220 million and current liabilities $4,955 million.
- Other balance-sheet items: Inventory rose 11% from year-end to $3,347 million, primarily reflecting artificial lift and directional drilling inventory. Adoption of the lease standard added about $1.1 billion of operating lease assets and liabilities at January 1; June 30 operating lease liabilities totaled $976 million.
Performance changes and management commentary
Management cited weaker North American stimulation activity and pricing as the main pressure on results, partly offset by international activity, completion tool sales and artificial lift. Q2 North America revenue was down 13% year over year but up 2% from Q1 2019. International revenue rose 13% year over year, supported by broad-based activity improvement. Drilling and Evaluation revenue grew, but its operating income declined 24%, with management citing mobilization costs and lower pricing for drilling-related and project management services.
Outlook, risks and contingencies
- Halliburton expected full-year 2019 capital expenditures of about $1.6 billion, down 20% from 2018. It intended to continue its quarterly dividend of $0.18 per share, subject to Board approval; approximately $5.2 billion remained authorized for share repurchases.
- Management expected North American activity to decline in the second half of 2019, particularly in gas basins, as customers control spending. It expected international activity improvement to continue into 2020, with pricing trending upward in some markets.
- Management noted volatile commodity prices and customer spending, payment delays or defaults, and geopolitical, regulatory and foreign-exchange risks. S&P changed its debt outlook from stable to negative; Moody’s outlook remained stable. The company reported no material change in its previously disclosed risk factors.
- The OFAC general license permitting Halliburton to operate in Venezuela was due to expire July 27, 2019. Unless extended, the company said it would cease operations; remaining assets could be expropriated. Halliburton did not expect a material adverse effect, noting its investment had already been written down.
- Environmental liabilities accrued were $64 million, including about $14 million for six Superfund sites. The company said actual costs could exceed accruals, but did not expect environmental matters to materially affect liquidity or results. Approximately $2.1 billion of letters of credit, guarantees and surety bonds were outstanding; some could trigger cash collateralization.
Key facts for investors to verify
- Whether the expected North American slowdown and international recovery develop as management projected, and how they affect segment margins and cash generation.
- Whether working-capital pressures—especially customer collections and inventory levels—reverse as management anticipated.
- Whether the $1.6 billion capital spending outlook, dividend plans and share repurchases remain supportable given cash flow and market conditions.
- Developments affecting Venezuela operations after the OFAC license expiration, and any related asset or compliance exposure.
- Changes in debt outlook, customer credit quality, environmental reserves and potential collateral requirements on guarantees.