BKR Q2 2025: IET Margins +190bps, On Track for 20% Target
- Margin expansion strength: Management emphasized that both IET margins expanded by 190 basis points and OFSE margins improved by 90 basis points, driven by cost efficiencies and the systematic deployment of their business system, indicating sustained margin improvement amid headwinds.
- Robust order momentum: The Q&A highlighted strong order performance in IET with $3.5 billion in orders this quarter, building on a year‐to-date total of $6.7 billion and record data center turbine awards, creating a durable order pipeline that supports future revenue growth.
- Strategic portfolio optimization: Executives detailed recent transactions that are expected to yield a net EBITDA benefit of just over $100 million in 2026, as well as unlock significant cash proceeds, thereby strengthening financial flexibility and enhancing long‐term growth prospects.
- Tariff Headwinds: Multiple questions highlighted rising tariffs—with Speaker 3 noting a $15 million negative impact in Q2 and expectations of over $100 million additional impact in the second half—which could further pressure margins if trade policies worsen.
- Order Growth Uncertainty: Concerns were raised about the reliance on strengthening LNG and data center orders to meet full-year guidance. If these orders or conversions falter, overall order momentum could weaken.
- Margin Sustainability Risks: Despite recent margin improvements, questions about maintaining or further growing margins amid soft upstream market conditions and ongoing cost pressures suggest that sustaining the 20% margin target, particularly in OFSE, might prove challenging.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | -3% (from $7,139M to $6,910M) | The decline in total revenue reflects weakening global demand and lower rig counts across segments compared to Q2 2024. The drop suggests that broader macroeconomic headwinds and shifting project activity from previous strong periods are impacting overall performance, potentially prompting further cost and operational adjustments. |
North America Revenue | -9% (from $1,023M to $928M) | The nearly 10% decline in North America revenue is driven by reduced domestic rig activations and lower activity levels compared to the previous quarter. This indicates that the domestic market is facing challenges similar to earlier trends of subdued rig counts, with potential longer-term implications if market conditions do not improve. |
Latin America Revenue | -3.6% (from $663M to $639M) | The mild decline in Latin America revenue is largely due to lower rig activations and softer regional market dynamics relative to Q2 2024. This continued, albeit modest, contraction builds on recent trends of slower-than-anticipated activity, indicating a persistent challenge in the region. |
Europe/CIS/Sub-Saharan Africa Revenue | -21% (from $827M to $653M) | A significant 21% drop in revenue in this region is predominantly attributed to reduced international activity and potential geopolitical risks. This steep decline contrasts with previous periods where higher activity contributed to revenue growth, suggesting a notable setback in these markets that may require strategic realignment. |
Middle East/Asia Revenue | -6.7% (from $1,498M to $1,398M) | The 6.7% decrease in Middle East/Asia revenue is due to less favorable rig activations and market uncertainties impacting the region compared to Q2 2024. Although the region still shows some resilience, the current lower performance underscores the influence of macroeconomic uncertainty on future growth prospects. |
Total OFSE Revenue | -10% (from $4,011M to $3,617M) | The 10% decline in OFSE revenue results from a combination of reduced rig counts, shifts in product mix, and weaker activity levels compared to Q2 2024. This downturn builds on earlier challenges faced in key segments, indicating that external economic pressures and operational issues continue to weigh on product line performance, thereby guiding future strategic focus toward cost efficiencies and operational improvements. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Total Company EBITDA | Q3 2025 | $1.04B to $1.2B | $1,185,000,000 | no change |
IET EBITDA | Q3 2025 | $520M to $580M | $600,000,000 | raised |
OFSE EBITDA | Q3 2025 | $600M to $700M | $665,000,000 | no change |
IET EBITDA | FY 2025 | $2.2B to $2.4B | $2,350,000,000 | no change |
OFSE EBITDA | FY 2025 | Potential to approach $4.7B | $2,625,000,000 | lowered |
Total Company EBITDA | FY 2025 | no prior guidance | $4,675,000,000 | no prior guidance |
IET Orders | FY 2025 | no prior guidance | $13,500,000,000 | no prior guidance |
IET Revenue | FY 2025 | no prior guidance | $12,900,000,000 | no prior guidance |
OFSE Revenue | FY 2025 | no prior guidance | $14,200,000,000 | no prior guidance |
Net EBITDA Impact from Tariffs | FY 2025 | no prior guidance | $100,000,000 to $200,000,000 | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Total Revenue | Q2 2025 | $6.3B to $7.0B | $6.91B | Met |
OFSE Revenue | Q2 2025 | $3.3B to $3.7B | $3.617B | Met |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Margin Expansion & Sustainability | Consistently discussed in Q1 2025 ( ) and earlier quarters (Q4 2024: ; Q3 2024: ) with an emphasis on structural cost efficiencies, business system transformation, and setting long‐term EBITDA targets. | Emphasized in Q2 2025 with strong overall margin improvement, detailed segment-specific gains, and a focus on achieving a 20% EBITDA target ( ). | Consistent focus with increasingly robust operational execution and clearer structure for margin accretion. |
IET Order Momentum & Pipeline | Addressed in Q1 2025 with record order levels ( ), in Q4 2024 with a strong full-year order book ( ), and in Q3 2024 with diverse orders supporting full-year guidance ( ). | Highlighted in Q2 2025 with strong order momentum totaling over $3.5 billion, diversified by non‐LNG markets and notable growth in data center orders ( ). | Momentum remains strong with a growing diversification of orders, particularly an emerging focus on digital/data center opportunities. |
Tariff and Trade Policy Challenges | Extensively discussed in Q1 2025 with detailed EBITDA impacts and mitigation actions ( ); mentioned in Q4 2024 regarding potential oil demand impacts ( ); no discussion in Q3 2024. | Detailed discussion in Q2 2025 with specific net EBITDA impacts, recent tariff changes, and clear mitigation steps addressing global tariffs ( ). | Increased emphasis in Q2 2025 relative to Q3 2024, with comprehensive coverage on impacts and proactive mitigation, reinforcing ongoing concerns. |
OFSE Performance Decline | In Q1 2025, noted significant revenue declines and regional weaknesses ( ); in Q4 2024, forecast a slight revenue decline with regional and offshore nuances ( ); in Q3 2024, mentioned regional declines with maintained margins ( ). | In Q2 2025, acknowledged facing a challenging revenue environment with mixed international performance but delivered improved margins through cost efficiencies and disciplined execution ( ). | Persistent revenue challenges yet a consistent shift toward margin protection through cost discipline and operational improvements. |
LNG Orders and Recovery Outlook | Q1 2025 focused on LNG orders with notable equipment and supply agreements ( ); Q4 2024 detailed multi-billion-dollar LNG bookings and recovery expectations ( ); Q3 2024 reviewed a cautious recovery and robust pipeline ( ). | Q2 2025 demonstrated strong LNG performance with significant order volumes and an optimistic recovery outlook, supported by long‐term FID targets and robust global demand expectations ( ). | Steady recovery outlook and order strength maintained, with reinforcing long‐term growth expectations. |
Strategic Portfolio Optimization & Transactions | Q4 2024 mentioned a philosophy of optimizing portfolios through tuck-in acquisitions and M&A fit ( ); no mention in Q1 2025 and Q3 2024. | Q2 2025 introduced several high-profile transactions including divestitures and acquisitions, with clear strategic rationale and expected positive EBITDA impact ( ). | Emerging as a more focal topic in Q2 2025, marking a shift toward active portfolio restructuring to support margin and growth objectives. |
Shareholder Returns & Dividend Growth | Q1 2025 reported robust returns with detailed dividend and share repurchase numbers ( ); Q4 2024 outlined a consistent multi-year dividend growth track record with a 10% increase ( ); Q3 2024 showed strong quarterly returns ( ). | Q2 2025 reaffirmed commitment to returning 60%-80% of free cash flow through dividends and repurchases, supported by new proceeds from portfolio actions and solid balance sheet metrics ( ). | Consistent and disciplined focus on shareholder returns and dividend growth, built on a strong financial position and strategic portfolio actions. |
Geopolitical Risks & OPEC+ Spare Capacity Concerns | Q1 2025 discussed global geopolitical tensions and OPEC+ action with increases in idled production ( ); Q4 2024 noted spillover effects on international demand ( ); Q3 2024 acknowledged the volatility from Middle East tensions ( ). | Q2 2025 highlighted ongoing geopolitical risks in the Middle East and Russia and detailed the expected impact of 2.2 million barrels per day of returning OPEC+ spare capacity, forecasting increased oil market volatility ( ). | Geopolitical and OPEC+ concerns persist across quarters, with Q2 2025 providing even more focused insights on the implications for market volatility and upstream spending. |
Price and Inflation Dependency | In Q1 2025, inflation and pricing impacts were discussed in detail along with tariff impacts ( ); in Q4 2024, pricing tailwinds in the gas turbine market were emphasized ( ); in Q3 2024, indexed pricing in service contracts was noted ( ). | Q2 2025 mentioned price discipline in the OFSE segment to support margins but provided less detail on broader inflation dependency ( ). | While previous calls detailed inflation-linked pricing dynamics, Q2 2025 offers a lighter treatment, focusing more on disciplined cost management than on inflation dependency. |
Customer Upgrade Spending Trends | Q1 2025 emphasized record upgrade orders and major awards in key regions ( ); Q4 2024 outlined expectations for upgrade-driven growth with new technologies ( ); Q3 2024 mentioned future opportunities from upgrade tech releases ( ). | Q2 2025 reported strong upgrade spending trends in the GasTech Services segment with significant year-to-date increases in upgrade and transactional orders, reflecting customers’ focus on prolonging asset life ( ). | Consistently strong customer spending trends on upgrades continue, with all periods showing robust orders; Q2 2025 maintains and reinforces this positive momentum. |
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Margin Outlook
Q: Can margins improve further in a soft market?
A: Management highlighted strong execution with IET margins expanding by 190 bps to almost 18% and OFSE margins improving by 90 bps to 18.7%, staying on track for the 20% IET target despite current headwinds. -
IET Orders
Q: How did IET orders perform this quarter?
A: They booked $3.5B in orders this quarter, driving the year-to-date total to $6.7B with notable data center awards, reinforcing confidence in reaching the $13.5B guidance and promising sustained momentum into 2026. -
Portfolio Moves
Q: What is the impact of recent transactions?
A: The strategic divestitures and acquisition are expected to deliver a modest margin benefit with a net EBITDA impact of just over $100M in 2026, unlocking capital for higher margin investments and strengthening the balance sheet. -
Tariff Impact
Q: How are tariffs affecting EBITDA?
A: Tariff pressures added about $15M to EBITDA in Q2, with the expectation that sequential increases could push the total net impact beyond $100M in the second half, assuming current policies hold.
Research analysts covering Baker Hughes.