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    Baker Hughes (BKR)

    Q1 2025 Earnings Summary

    Reported on Apr 23, 2025 (After Market Close)
    Pre-Earnings Price$35.89Last close (Apr 23, 2025)
    Post-Earnings Price$36.25Open (Apr 24, 2025)
    Price Change
    $0.36(+1.00%)
    • Strong IET Order Momentum: The Q&A highlighted robust order activity in IET with $3.2 billion in first-quarter orders and growing LNG and data center awards, which underpins a diversified and strong order pipeline.
    • Progress in Margin Expansion: Executives emphasized ongoing margin improvements driven by cost efficiencies and operational transformation, with clear strategies to hit a 20% EBITDA margin target despite headwinds.
    • Effective Tariff Mitigation Strategies: The management detailed proactive initiatives—leveraging a diversified global supply chain and contract mechanisms—to offset tariff-related pressures, limiting the net EBITDA impact to the $100–$200 million range.
    • Tariff and Trade Policy Uncertainty: The executives cautioned that persistent tariffs under the current 90-day pause could result in a net EBITDA impact of $100-200 million, and any worsening in trade policy or secondary effects (such as lower oil prices) could further erode margins and overall performance.
    • Weakening OFSE Performance: There was significant emphasis on delayed discretionary spending and marked softness in international markets, including a 72% drop in rig activity in Mexico, which raises concerns that the OFSE segment could continue to face revenue declines and operational challenges.
    • Challenges to IET Margin Expansion: Although the company is making progress, uncertainties remain around tariff-related cost inflation and potential reduced volumes in high-margin areas of IET, threatening the pace toward the target EBITDA margins of 18%-20% if mitigation strategies do not fully counteract these pressures.
    MetricYoY ChangeReason

    Total Revenue

    +0.1% (from $6,418M to $6,427M)

    Total Revenue remained essentially flat in Q1 2025, reflecting a balance between offsetting performance drivers. While prior period Q1 2024 saw modest growth from stable contributions across segments, in Q1 2025 increases in some product lines were largely offset by declines in others, leading to minimal net change.

    Net Income

    -11% (from $463M to $409M)

    The 11% decline in Net Income is attributed to a combination of lower operating profit margins and increased costs—such as unfavorable changes in “other” expense items (including swings in fair value adjustments) and a reduced contribution from declining segments—contrasting with the higher net income achieved in Q1 2024.

    Basic EPS

    -11% (from $0.46 to $0.41)

    Corresponding with the drop in net income, Basic EPS fell by about 11% due to lower earnings per share on a stable share count, highlighting the reduced profitability relative to Q1 2024 despite similar revenue levels.

    Cash Dividend per Class A Share

    +9.5% (from $0.21 to $0.23)

    The cash dividend increase reflects Baker Hughes’ capital allocation strategy, emphasizing shareholder returns even as earnings softened. This increment aligns with the company’s consistent dividend growth philosophy seen previously, despite the challenging earnings environment.

    Selling, General & Administrative Expenses

    -6.8% (from $618M to $577M)

    SG&A expenses declined by about 6.8% as ongoing cost optimization initiatives continued to take effect. This reduction, consistent with similar efforts in Q1 2024, helped mitigate some inflationary pressures and partially offset lower revenues in specific segments.

    Operating Cash Flows

    -9% (from $784M to $709M)

    The nearly 9% drop in operating cash flows is primarily driven by lower net income and adverse working capital adjustments compared to Q1 2024, where stronger collections and cost-control measures resulted in more robust cash generation.

    Income Taxes Paid

    +92% (from $108M to $207M)

    The sharp 92% increase in income taxes paid is due to a normalization of the effective tax rate and a significant rise in current tax liabilities. In Q1 2024, benefits such as a deferred tax benefit and a valuation allowance release kept taxes lower, whereas in Q1 2025 those adjustments were absent, leading to near doubling of the cash outflow for taxes.

    Geographical Revenue Contributions

    – (Not a direct YoY change; Q1 2025: Middle East/Asia $1,429M, International $2,577M, North America $922M, Latin America $568M)

    The geographical breakdown for Q1 2025 highlights a diversified revenue base with strong Middle East/Asia and International contributions, which help offset softer performance in key domestic markets. Compared to previous periods, this mix underscores ongoing adjustments to global market dynamics, where regional performance shifts reflect both local market recovery and segment-specific trends.

    MetricPeriodPrevious GuidanceCurrent GuidanceChange

    Revenue

    Q2 2025

    no prior guidance

    $6.3B to $7B

    no prior guidance

    Total EBITDA

    Q2 2025

    no prior guidance

    Approximately $1.04B to $1.2B

    no prior guidance

    IET Revenue

    Q2 2025

    no prior guidance

    $3.0B to $3.3B

    no prior guidance

    IET EBITDA

    Q2 2025

    no prior guidance

    $520M to $580M

    no prior guidance

    OFSE Revenue

    Q2 2025

    no prior guidance

    $3.3B to $3.7B

    no prior guidance

    OFSE EBITDA

    Q2 2025

    no prior guidance

    $600M to $700M

    no prior guidance

    IET EBITDA

    FY 2025

    Approximately $2.3B

    $2.2B to $2.4B

    no change

    OFSE EBITDA

    FY 2025

    Approximately $3B

    Potential to approach $4.7B

    raised

    MetricPeriodGuidanceActualPerformance
    Revenue
    Q1 2025
    Approximately $6.5 billion
    $6,427 million
    Missed
    Total EBITDA
    Q1 2025
    Approximately $1.02 billion
    Estimated $897 million (calculated from Income Before Income Taxes $561+ Interest Expense $51+ Depreciation & Amort. $285)
    Missed
    TopicPrevious MentionsCurrent PeriodTrend

    IET Order Growth and Margin Expansion

    In Q2–Q4 2024, Baker Hughes highlighted robust order volumes, record backlogs, and solid margin expansion driven by productivity and lean initiatives ( ).

    In Q1 2025, the segment posted strong growth with diversified orders (including LNG equipment and data center turbines), record RPO at $30.4 billion, and notable margin gains (e.g., EBITDA up 30% YoY) ( ).

    Consistent strong growth with an evolving focus on new market segments (e.g., data centers) and continued margin improvements.

    OFSE Performance Challenges

    Throughout Q2–Q4 2024, challenges were noted such as revenue declines, regional softness (e.g., Mexico, Gulf of Mexico), and activity uncertainties impacting EBITDA ( ).

    Q1 2025 continued to report revenue declines (10% sequential drop), seasonal weakness, and significant rig activity reductions in key regions, accompanied by trade and tariff challenges ( ).

    Persistent operational challenges with an intensified focus on mitigation strategies and structural adjustments in Q1 2025.

    LNG Market Dynamics and Recovery Outlook

    Q2–Q4 2024 conveyed optimism with record contracting, FID expectations, and increasing LNG equipment orders despite earlier order pauses ( ).

    In Q1 2025, Baker Hughes underscored strong long‐term contracting trends, strategic equipment orders in the U.S. (post-moratorium repeal), and continued capacity expansion goals ( ).

    Steady, optimistic outlook with enhanced strategic positioning and record order volumes reinforcing recovery momentum.

    Tariff and Trade Policy Uncertainty with Mitigation Strategies

    In Q4 2024, tariff uncertainty was mentioned primarily in the context of potential dampening of oil demand, with little detailed mitigation discussion; Q3 and Q2 2024 had no mention ( ).

    Q1 2025 provided a detailed explanation of mitigation strategies—including domestic sourcing, free trade agreements, and contractual pass-throughs—with an estimated net EBITDA impact of $100–$200 million ( ).

    A new, more comprehensive focus emerges in Q1 2025, contrasting minimal earlier discussion with detailed mitigation planning and quantified impacts.

    International and Geopolitical Market Headwinds

    Across Q2–Q4 2024, discussions centered on geopolitical risks, uneven global growth, demand uncertainties, and regional spending softness ( ).

    Q1 2025 emphasized geopolitical tensions, trade policy uncertainty, and quantified impacts (e.g., 52% decline in rig activity in Mexico) along with broader macroeconomic risks ( ).

    Recurring concerns with an increased emphasis on quantifying impacts and linking geopolitical events directly to operational challenges in Q1 2025.

    New Energy Orders, CCUS Opportunities, and Off-grid/Microgrid Solutions

    In Q2 2024, record New Energy orders and significant identification of CCUS themes were reported; Q3 2024 detailed the launch of new digital CCUS solutions and microgrid momentum; Q4 2024 highlighted strong new energy orders and off-grid opportunities ( ).

    Q1 2025 continued the story with $238 million in New Energy orders, new CCUS partnerships (e.g., with Frontier Infrastructure), and off-grid orders for microgrid solutions from Turbine-X Energy ( ).

    Consistent positive momentum with ongoing diversification into decarbonization and distributed energy solutions, reinforcing the company’s innovation focus.

    Customer Upgrade Trends and Installed Base Growth

    Q2 2024 stressed long-term growth potential from the installed base; Q3 2024 mentioned expectations of 20% growth by 2030 with opportunities for upgrades; Q4 2024 stressed the role of new technologies and digital solutions in upgrades ( ).

    In Q1 2025, Baker Hughes reported record upgrade orders with a 167% YoY increase and highlighted structural growth in the installed base, particularly within Gas Tech Services ( ).

    An upward acceleration is evident in Q1 2025 with markedly higher upgrade orders, reinforcing an effective upselling strategy within a growing installed base.

    Shareholder Returns and Dividend Policy Evolution

    In Q2–Q4 2024, the company consistently returned significant cash to shareholders (60%–80% of free cash flow) and noted consecutive dividend increases and robust repurchases ( ).

    Q1 2025 saw a shareholder return of $417 million (dividends and share repurchases) with continued commitment to the 60%–80% free cash flow target ( ).

    A stable, consistent focus on strong shareholder returns, with sustained dividend growth and buyback strategies reaffirming financial discipline.

    Pricing and Inflation Dependency Risks

    In Q3 2024, inflation’s impact was noted through contractual indexing and reliance on favorable market conditions; Q4 2024 highlighted how cost inflation provided pricing tailwinds, while Q2 2024 made only indirect references ( ).

    Q1 2025 offered a detailed discussion on pricing risks linked to inflation and tariff impacts, particularly in the Industrial Tech segment, with mitigation measures and contractual pass-through strategies highlighted ( ).

    A more nuanced and detailed examination appears in Q1 2025, reflecting both the risks and mitigation efforts amid ongoing inflationary pressures.

    1. Guidance Confidence
      Q: Can low-end EBITDA be met?
      A: Management believes that if tariff impacts remain toward the lower end of the $100M–$200M range and oil prices stabilize, the company can achieve roughly $4.7B EBITDA, maintaining confidence in the full-year outlook.

    2. Margin Outlook
      Q: How will margins improve in OFSE?
      A: Management highlighted that, despite a 10% revenue decline driven by softer demand and deferred spending, OFSE margins are expected to sequentially improve by about 80 basis points, moving toward the 20% target over time.

    3. IET Margins
      Q: What drives IET margin expansion?
      A: The team projects modest sequential margin gains in IET as higher-margin Gas Tech Equipment and ongoing efficiency efforts push the EBITDA margin toward a midpoint of 18% in the near term and eventually 20% by 2026.

    4. Tariff Mitigation
      Q: Can tariff impacts be reduced further?
      A: Management is deploying proactive mitigation strategies—including leveraging their diversified, global supply chain and local sourcing—to help keep the net tariff impact within the $100M–$200M range, with some potential for further reduction.

    5. Data Centers
      Q: How significant are data center orders?
      A: The company sees data centers as a growing opportunity, already booking 350 MW in NovaLT equipment and expecting at least $1.5B in orders over the next few years, underscoring strong long-term potential.

    Research analysts covering Baker Hughes.