Baker Hughes Incorporated have announced their results for the fourth quarter of 2014.
Martin Craighead, Baker Hughes Chairman and Chief Executive Officer commented, "Our fourth quarter results punctuate a record year for our company in 2014. We delivered very strong growth in revenue, earnings and free cash flow during the fourth quarter. In spite of increasing concerns of challenging market conditions, we remained focused on achieving the performance objectives that we laid out last year. This was made possible by managing the business more efficiently and delivering on our strategy of converting innovations into earnings through new technologies that provide value to customers and competitive differentiation for Baker Hughes.
"In North America, our multiyear plan to transform and modernise our pressure pumping business delivered positive results during the quarter, leading to record revenue and the highest profitability for that product line in three years. Additionally, increasing demand for cost-effective well construction technologies and new production enhancement solutions, resulted in record revenue for completion systems, drill bits, artificial lift, and upstream chemicals.
"Our international operations posted higher revenue and margins across all segments. Our Middle East/Asia Pacific segment remains our fastest growing operation and achieved double-digit growth sequentially, including record revenue from drilling services and completion systems. Our Latin America segment achieved a significant increase in profitability, ending the year as our highest margin region for the quarter. Our Europe/Africa/Russia Caspian segment also delivered record revenue and operating profit, overcoming challenging geopolitical conditions. Our global supply chain delivered an unprecedented volume of products to end the year, contributing to the outstanding performance of our international business.
"When we reflect on the marketplace, the bearish sentiment that has pervaded our industry is understandable, considering the steep drop in commodity prices in recent months. While market demand ended up being more resilient in the fourth quarter than many had predicted, the recent declines seen in rig counts will clearly affect results in 2015. We are taking proactive steps to manage the business through these challenges, and we are well positioned financially for the months ahead. Our strategy remains unchanged as we continue to focus on execution and delivering new technologies that lower the cost of well construction, optimise well production, and increase ultimate recoveries. Regarding our pending merger, I am pleased with the overall progress and the efforts of the integration teams to develop plans for an efficient and effective combination."
2014 Full Year Results
Revenue for the year was a record US$24.6 billion, up 10% compared to US$22.4 billion for 2013.
In 2014, adjusted EBITDA (a non-GAAP measure) was US$4.8 billion, a 30% increase compared to US$3.7 billion for the prior year.
Adjusted net income for the year was a record US$1.8 billion, up 59% compared to US$1.2 billion for the year 2013. On a GAAP basis, net income attributable to Baker Hughes for the year was US$1.7 billion, an increase of 57% compared to US$1.1 billion in 2013.
Free cash flow for the full year was a record US$1.6 billion, compared to US$1.5 billion for 2013.
For the year, capital expenditures were US$1.8 billion, which is down US$294 million or 14% compared to 2013. Depreciation and amortisation expense for 2014 was US$1.8 billion, up 7% compared to US$1.7 billion in 2013.
2014 Fourth Quarter Results
Revenue for the fourth quarter was a record US$6.6 billion, up 6% compared to US$6.3 billion in the third quarter of 2014.
Adjusted EBITDA for the fourth quarter of 2014 was US$1.4 billion, an increase of US$261 million or 22% compared to the third quarter of 2014.
Adjusted net income for the fourth quarter of 2014 was a record US$629 million, up 41% compared to US$447 million in the prior quarter. Adjusted net income for the fourth quarter of 2014 excludes a US$34 million before and after-tax gain associated with the deconsolidation of a joint venture. On a GAAP basis, net income attributable to Baker Hughes for the fourth quarter was US$663 million, a 77% increase compared to US$375 million in the third quarter of 2014.
The effective tax rate on adjusted net income for the fourth quarter was 31.5%, compared to 34.6% in the third quarter of 2014. The decrease is primarily attributed to the recent extension of the U.S. research and development tax credit, as well as a more favourable geographic mix of earnings.
Free cash flow for the current quarter was a record US$838 million, a 16% increase compared to US$725 million for the third quarter of 2014.
For the fourth quarter, capital expenditures were US$503 million, compared to US$425 million in the third quarter of 2014. Depreciation and amortisation expense for the fourth quarter was US$468 million, up 3% compared to US$455 million in the previous quarter.
North America delivered record revenue in the fourth quarter of US$3.3 billion, which increased 5% sequentially. As the quarter progressed, activity levels rose in Canada, West Texas, and the Southern geomarket, and remained strong across all onshore operations until the holiday period, as reflected in the decline in rig counts in late December. As a result, the segment delivered record revenue across pressure pumping, artificial lift, upstream chemicals, completion systems, and drill bits. North America operating profit was US$488 million and operating profit margin was 14.8%, representing an increase of 270 basis points versus the prior quarter. Profitability increased significantly for pressure pumping due to improved utilisation and commercial terms from contracts secured in previous months. Profitability also improved in the Gulf of Mexico due primarily to increased deepwater stimulation activity, following a slowdown in activity in the third quarter.
All international segments posted increased revenue and margins in the fourth quarter. The Middle East/Asia Pacific segment led the sequential increase with record revenue of US$1.2 billion, growing 13% over the prior quarter with high activity and strong year-end product sales in North Arabian Gulf, North Asia, and Australasia geomarkets. Record revenue was posted for drilling services, artificial lift, pressure pumping, and completion systems. Operating profit for this segment was US$227 million and operating profit margin was 18.7%, representing an increase of 430 basis points over the prior quarter. Increased profitability was realised from a favourable mix of year-end product sales, along with improved profitability in Iraq following demobilisation charges in the third quarter.
Latin America ended the year as the most profitable segment, with operating profit margins increasing 750 basis points sequentially to 20%. Revenue for this segment increased 4% over the prior quarter to US$591 million. The increase in sales and rise in profitability can largely be attributed to record sales of artificial lift in the Andean region and other onshore markets. Profitability was further improved from strong operational performance and improved commercial terms relating to a new drilling services contract in Brazil.
The Europe/Africa/Russia Caspian segment posted record revenue of US$1.1 billion, which was a 3% increase over the third quarter. The sequential increase includes record revenue from wireline services, completion systems, and upstream chemicals. Operating profit wasUS$200 million and operating profit margins were 17.4%. Africa delivered strong growth in revenue and profit sequentially, based on high activity levels for wireline services and drilling services in Angola and Nigeria. Year-end product sales were high across other parts of Africa. Profitability also improved in North Africa, following restructuring charges in the third quarter. Revenue in Russia Caspian was relatively flat sequentially, as increased revenue from year-end product sales of completion systems was offset by the unfavourable devaluation of the Russian ruble.
Industrial Services delivered record revenue of US$377 million, which was a 13% increase sequentially. The increase in revenue is due to the addition of a new pipeline services business, which was acquired late in the third quarter. The increased revenue from this new business was partially offset by seasonal declines in activity. Operating profit was US$23 million and operating profit margins were 6.1%, representing a decrease of 440 basis points. The decrease in profitability is attributed to acquisition and integration costs of the new business, coupled with seasonal activity reductions.
Adapted from press release by Joe Green
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