Halliburton (HAL) Q4 earnings preview: Weakness in the energy sector to hurt results

Halliburton Company (NYSE: HAL) is slated to report its fourth-quarter 2019 earnings results on Tuesday, January 21, before the market opens. The oilfield services company’s results will be hurt by the slowdown in exploration and production activities in the US energy sector while improvement will continue at a steady pace in international.

The spending on upstream exploration, development and production programs by oil and natural gas companies could significantly impact the activity levels within its operations. In North America, the company expects activity to further decline in the fourth quarter across all basins in the land market given the reduction in customer spending that it sees, which will impact both its business segments.

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The cash flow generation commitments by customers, oversupplied gas market, holiday and potential weather impacts, and oil demand softness demand in 2020 could lower the activity in North America. Also, the rig count and completions activity in Q4 is expected to be lower than last year.

The company could undertake further cost reductions by streamlining its operations and corporate functions in order to lower the costs and improve margins. Halliburton is likely to continue to focus on the international mature fields market, and growing its Production Group business. The efforts provide the company with a strong base to capitalize on international recovery.

Analysts expect the company’s earnings to dip by 29.30% to $0.29 per share and revenue will drop by 14% to $5.11 billion for the fourth quarter. The company has surprised investors by beating analysts’ expectations thrice in the past four quarters. The majority of the analysts recommended a “buy” rating with an average price target of $27.30.

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For the third quarter, Halliburton posted a 32% dip in earnings as the continuing weakness in North American operations hurt the top line by 10%. Revenue in North America dropped by 21% while International revenue was higher compared to last year. The company continued to manage challenging market dynamics during the third quarter as a divergence of the US and international markets remained prevalent.

For the full year 2019, the company remains confident in achieving high single-digit international growth. This will continue to benefit both its Drilling and Evaluation and Completion and Production divisions. The management expects to leverage the international recovery and improvement in the North American Market and generate strong free cash flow and produce strong returns.

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