Baker Hughes

By: CaraTan   Date: 5 July 2008

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CaraTan

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Cara Tan, editor

 

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Baker Hughes seems to be on the right track with investments into future growth, share repurchases and dividend increases.

Baker Hughes’ Board of Directors has not only approved a dividend hike, but has also authorized $1 billion in share buybacks in addition to the company’s existing plan.

In the second quarter, the company repurchased 51,000 shares at an average price of $87.08 per share. It still had authorization to buyback about $251.7 million worth of shares. Baker Hughes also hiked its dividend by about 15% to $0.15 per share.

The company’s net income for the second quarter of 2008 rose to $379.3 million, or $1.23 per diluted share, from $349.6 million, or $1.09 per diluted share, in the year-ago quarter. Net income did not fair well vis-à-vis that reported in the first quarter. However, Baker Hughes recorded a gain from the sale of the Surface Safety Systems product line in the first quarter, while in the second it recorded a charge related to the settlement of litigation with ReedHycalog.

Revenue grew 18% to $2,997.5 million, from $2,537.5 million in the second quarter of 2007 and was up 12% sequentially. Chairman and CEO Chad C. Deaton pointed out that Baker Hughes suffered from “significant inflation in labor and materials costs,” but was able to offset this with “price, utilization and productivity improvements.” Mr. Deaton added that although elevated oil prices are impacting demand, “global production declines and growing demand for oil in China, India and the Middle East” are expected to “support increased spending for exploration, development and production.”

Baker Hughes announced more than $1.6 billion in project awards and extensions in Brazil and Mexico. The company plans to invest into infrastructure and technology development this year to support future growth. It also plans to significantly increase its global workforce.

The company’s international rig count was up by 74 to 1,092 in July, as compared to the same period in 2007. Its international offshore rig count increased by 16 to 312. Baker Hughes’ worldwide rig count was up by 292 to 3,436 in July, from the figure reported in July last year.

In July, UBS upgraded Baker Hughes from Neutral to Buy. RBC Capital Markets also upgraded the company from Underperform to Sector Perform.

 

Baker Hughes offers a 0.6% yield, which compares favorably with most of its peers, who are not paying any dividends. The company also has an impressive ROE of 25.27%. Shares have been on a downturn so far this month and are now trading significantly short of their 52-week high of $100.29 (October 16, 2007). The PEG ratio is at 0.86. Baker Hughes is buying its shares, which may be a good indicator for investors to follow suit.

 

Alternatio Cirqui, EconomyWatch.com Energy Correspondent

 


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