Release Date: July 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Halliburton Co (HAL, Financial) delivered solid second-quarter results with total company revenue of $5.8 billion and an operating margin of 18%.
- International revenue grew 8% year over year, marking the 12th consecutive quarter of year-on-year growth in the international business.
- The company generated $1.1 billion of cash flow from operations and about $800 million of free cash flow, repurchasing $250 million of common stock.
- Halliburton's artificial lift product line is growing in international markets at double the rate of the overall international business.
- The iCruise X rotary steerable system and LOGIX autonomous drilling platform showed strong performance, with drilling services revenue in the Middle East growing about 30% year over year.
Negative Points
- North America revenue declined 3% compared to the first quarter, with full-year North America revenues expected to decline 6% to 8% versus last year due to lower activity.
- The gas market took a leg down, impacting activity levels more than expected.
- Completion and production division revenue in Q2 was flat sequentially, with softer results in North America offsetting strong international performance.
- The company retired a few fleets during the quarter, indicating a reduction in capacity availability.
- Q3 margins in the international business are expected to be lower than Q2, contributing to a sequential decrease in completion and production division margins.
Q & A Highlights
Q: North America softening a little bit, not a surprise. What does the recontracting of your fleet look like right now in terms of contracting?
A: We still see a lot of demand for e-fleets. We rolled a couple out this quarter and signed more contracts, providing a runway through the end of this year and into 2025. We don't have any contracts expiring early until next year. Repeat customers are signing up for additional fleets, indicating the value they see in our offerings.
Q: Can you talk about the growth prospects in the Middle East and how you see that evolving?
A: I'm very confident about our business in the Middle East. We have significant exposure to both unconventional and gas work in Saudi Arabia. We see meaningful growth opportunities and are optimistic about our prospects in the region.
Q: How would you characterize the declines in North America in terms of impact from lower activity levels versus pricing impacts?
A: The decline is primarily activity-based. We retired a few fleets during the quarter, and the gas market took a leg down, which we didn't expect. M&A activity also takes time to digest, impacting overall activity levels.
Q: Can you provide any qualitative or quantitative thoughts on international spending trends for 2025?
A: International spending trends look strong for next year. We see a lot of projects being tendered or planned for next year. Activity is picking up, especially in NOC-driven regions like the Middle East. We are confident in both Halliburton's and the industry's outlook for 2025.
Q: What do you think will drive the bottom in North American activity? Are you seeing any green shoots in customer conversations?
A: Customers are working through plans for 2025 now. New equipment is not being built, and old equipment is being retired, shrinking capacity availability. I expect an increase in activity as companies establish new plans and assets end up in the hands of new teams. I also expect some pickup in gas activity next year.
Q: How should we think about working capital and your commitment to returning capital to shareholders for the rest of the year?
A: Working capital will evolve consistently with our guidance of over 10% free cash flow growth compared to last year. We continue to focus on overall efficiency. We repurchased $250 million of our common stock in Q1 and Q2, and this is a good guiding point for the remainder of 2024.
Q: Can you walk us through some of the puts and takes that have unfolded in your international outlook for this year?
A: We have good visibility for the rest of the year and wanted to tighten our guidance. Q4 will be the highest international quarter, typically due to software and tool sales. We continue to grow day by day, focusing on profitable growth. My expectation is for continued international growth.
Q: Could you walk through some of the various unconventional international opportunities you're seeing develop over the next two to three years?
A: Saudi Arabia and Argentina are meaningful markets executing well. The rest of the Middle East also shows promise. We have a proven model in two international markets, and other regions with good reservoirs are taking a pragmatic approach to development.
Q: How should we think about margin expansion opportunities in your Drilling and Evaluation (D&E) division?
A: Look at year-on-year progression by quarter. We continue to improve margins in D&E and expect this to continue into next year. Our iCruise and iStar technologies are driving efficiency and performance, structurally improving margins.
Q: Can you update us on the production chemical side of things?
A: The production chemical business is part of our portfolio but inherently lower returning. We focus on profitability and returns. We are pleased with the pace of filling our plant in Saudi Arabia and continue to execute well in this business.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
