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    Baker Hughes Co (BKR)

    Q1 2024 Earnings Summary

    Reported on Jan 10, 2025 (After Market Close)
    Pre-Earnings Price$32.67Last close (Apr 24, 2024)
    Post-Earnings Price$32.97Open (Apr 25, 2024)
    Price Change
    $0.30(+0.92%)

    What went well

    • Baker Hughes is confident in achieving 20% EBITDA margins, driven by cost efficiencies, productivity enhancements, and higher-margin activities, without relying on market tailwinds.
    • Significant growth opportunities in Saudi Arabia, including a projected 60% increase in natural gas production by 2030, investments in new energy and chemicals, and localization efforts position Baker Hughes as a key player across the full value chain in the region.
    • Strong performance in the Industrial & Energy Technology (IET) segment, with revenue up nearly 50% year-over-year in Gas Tech equipment and EBITDA margins improving, fueled by robust backlog conversion and productivity improvements.

    Q&A Summary

    1. Margin Outlook

      Q: Can you refresh us on drivers to reach 20% margins next year?

      A: Nancy Buese reaffirmed confidence in hitting 20% EBITDA margins in 2024 without needing market tailwinds. Key drivers include their cost-out program reducing duplication and improving efficiency, continued cost efficiencies, and higher-margin activity in the SSPS backlog, which will boost margins in '24 and '25. They see strength in international markets, maintaining their outlook for high single-digit E&P CapEx increases.

    2. Full-Year Guidance Confidence

      Q: Are you more confident in the full-year outlook given the first half?

      A: Despite early strength, Baker Hughes retains their full-year guidance, citing it's still early with unknowns ahead. They expressed confidence in the full-year targets, underpinned by strong execution, robust backlog levels, and continued margin expansion, even as they face a slower-than-expected start in OFSE due to timing and offshore rig delays.

    3. Non-LNG Orders Growth

      Q: Can you discuss non-LNG orders growth in IET?

      A: Non-LNG orders in IET tripled in Q1 versus prior year, driven by equipment and solutions across multiple end markets like upstream, midstream, refining, petrochemical, and industrial. They see expanding opportunities in onshore/offshore production, gas infrastructure, and industrial gas turbines like NovaLT for distributed power generation.

    4. Carbon Capture Strategy

      Q: Has there been a change in your CCUS strategy?

      A: Baker Hughes sees Carbon Capture, Utilization, and Storage (CCUS) as a key growth area, with projects starting to scale. They've invested in various CCUS technologies, including the chilled ammonia process for large-scale applications, the mixed salt process, and compact carbon capture for smaller industrial footprints, and are piloting direct air capture technology. Complementing these are their compression and storage capabilities. They believe CCUS will be a first mover in the energy transition as focus shifts to emissions.

    5. Differentiation in Saudi Arabia

      Q: How are you differentiated in Saudi Arabia versus competitors?

      A: Baker Hughes focuses on localization in Saudi Arabia, opening new facilities like their chemicals plant and manufacturing wellheads, compressors, and drill bits in-country. This strategy allows them to play across the entire energy value chain, including oilfield services, gas infrastructure, hydrogen projects like NEOM, and digital solutions. Their local capabilities support not just the Kingdom but the region and beyond, providing a unique advantage.

    6. Energy Demand from AI

      Q: Are data centers' energy needs impacting your business?

      A: There's a growing realization of increased energy demand driven by data centers, especially with AI expansion. Baker Hughes' ready gas turbines can run on natural gas today and switch to hydrogen in the future, aligning with customers' needs for off-grid and distributed power solutions while reducing emissions. They see this as a growing segment that diversifies their equipment portfolio.

    7. Production Optimization

      Q: How is the production market evolving where you have strength?

      A: The shift in market dynamics doesn't change their strategy focused on production solutions. With 70% of global production from mature assets, there's a tremendous focus on optimization. Baker Hughes has strong capabilities with ESPs, chemicals, and digital automation through AI solutions like Leucipa, providing significant opportunities for customers and increased focus for the company.

    8. 2Q Guidance Details

      Q: What are the puts and takes around the 2Q guide?

      A: Strength in the 2Q guidance reflects a differentiated portfolio leading to durable earnings and strong free cash flow growth. The midpoint EBITDA guidance represents 16% year-over-year growth, including 20% EBITDA growth in IET. Drivers include robust backlog levels, higher margins from backlog conversion, and broadening strength across Industrial Tech. This is partially offset by a slower start in OFSE due to timing and offshore rig delays.

    9. IET Margins and Drivers

      Q: Can you discuss the strong IET margins and their drivers?

      A: IET had a strong quarter with revenue up nearly 50% year-over-year and EBITDA up nearly 200 basis points. Drivers include strong backlog conversion in Gas Tech equipment, better backlog margins, productivity in factories, and improving margins in Industrial Solutions as supply chain constraints ease. They continue to see margin expansion and improvement toward the 20% EBITDA goal as they move forward.

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