Baker Hughes’ first-quarter revenue of $6.4bn was flat compared to the same period last year, landing in the lower half of the company’s guidance range. A decline in Oilfield Services & Equipment (OFSE) sales was offset by double-digit growth in the Industrial & Energy Technology (IET) division.
Underlying cash profit (EBITDA) was up 10% to $1.0bn, towards the top end of guidance, helped by margin improvements in both divisions.
Free cash flow fell 10% to $454mn driven by a reduction in cash generated from operations.
The company returned $417mn of cash to shareholders through dividends and buybacks.
The mid-point of previously stated guidance implies revenue in line with 2024, and underlying EBITDA growth of 8% to around $5.0bn. However, Baker Hughes estimates that tariffs could directly impact full-year EBITDA by between $0.1-$0.2bn and is monitoring customer behaviour. While it still sees full-year guidance in the IET as achievable, there is more uncertainty in OFSE.
The shares fell 1.9% in pre-market trading.
Our view
Baker Hughes’ first-quarter results provoked little reaction from the market despite warnings around the deteriorating outlook in the Oilfield Services & Equipment (OFSE) division. Given the rhetoric around tariffs this month, this hasn’t taken investors by surprise.
The direct impact of tariffs on Baker Hughes’ bottom line looks to be relatively limited. But with oil prices at close to four-year lows, there is little motivation for producers to “drill baby drill”.
However, we think Baker Hughes is better positioned than many in the sector to prosper in these turbulent times. Sales, profits and order metrics in the all-important Industrial & Energy Technology (IET) division continue to hold up well.
Momentum in IET is supported by a healthy demand for liquefied natural gas, due to a continuing drive for energy security as well as growing energy requirements. Baker Hughes is a frontrunner to pick up new projects in this space. Although it’s early days, Baker Hughes has also seen initial awards from data centers which are seeing an exponential increase in their power demands.
IET also houses the company's gas technology and new energy activities. A strong growth driver here is the ongoing build-out of liquefied natural gas infrastructure (LNG), where capacity is set to increase by about 60% by the end of the decade, due to its place as a key transition fuel and role in improving energy security.
There’s no assurance that an economic slowdown won't weigh on development activity amongst IET customers. But the group's order book still stands at more than $33bn, meaning that it can deal with short-term lulls in commercial activity. This makes it less exposed to energy price fluctuations than oil & gas producers, but it would still feel the impact if prices were weak for a prolonged period.
The group boasts a robust balance sheet and impressive cash flows. That helps support share buybacks and a prospective dividend yield of 2.5%. But future shareholder returns can’t be guaranteed.
Baker Hughes’ attractive business mix is reflected by a valuation towards the top of the peer group. It’s well deserved in our opinion, but means the shares are likely to be sensitive to any sustained weakness in order intake and changes in the macroeconomic outlook.
Environmental, social and governance (ESG) risk
The ESG risk to oil and gas service providers runs parallel to those impacting producers. Environmental concerns are the primary driver of ESG risk for this group, with carbon emissions and waste disposal being the main issues. Health and safety, community relations and ethical governance are also contributors to ESG risk.
According to Sustainalytics, Baker Hughes's management of material ESG issues is strong, as are its ESG reporting practices. Based on available evidence, a part of executive remuneration is explicitly linked to sustainability performance targets. Similarly, the environmental policy is very strong. The company also has a strong whistleblower programme in place. It does not appear to be implicated in any significant controversies. It has a stated goal of reducing scope 1 and 2 emissions by 50% by 2030, and an overall reduction in scope 3 by 2033, although we would like to see this target more clearly defined.
Baker Hughes key facts
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