Q4 2024 Earnings Summary
- Strong Growth in Industrial & Energy Technology (IET) Segment: Baker Hughes anticipates its IET segment to become a larger portion of the business due to significant growth opportunities in gas infrastructure, LNG, FPSOs, and industrial technology. The company has booked $40 billion of IET orders over the past three years, including $13 billion in 2024, the second-highest in its history, despite a 65% decline in LNG orders due to the U.S. permitting moratorium. This resilience indicates strong demand and positions the company well for future growth.
- Commitment to Shareholder Returns through Growing Dividends: The company remains committed to returning 60% to 80% of free cash flow to shareholders, primarily through dividends. Baker Hughes has increased its dividend for the past four consecutive years, reflecting its strong free cash flow performance and commitment to growing profitability. Since 2017, the company has returned over $10 billion in dividends and buybacks, demonstrating a strong shareholder return track record.
- Positive Outlook for 2025 IET Orders and LNG Recovery: Baker Hughes expects strong IET orders in 2025, guiding to $13.5 billion at the midpoint, which would mark the third consecutive year exceeding $13 billion. The company anticipates LNG orders to rebound, with about 80 MTPA expected to reach FID over the next couple of years. This, along with continued demand in gas infrastructure and FPSOs, supports a positive growth trajectory for the company.
- Decrease in OFSE Revenue Expected in 2025: Baker Hughes anticipates that their Oilfield Services & Equipment (OFSE) segment will experience a 4% decline in top-line revenue at the midpoint guidance for 2025. This expectation is due to anticipated spending reductions in North America, which are expected to decrease year-on-year in the mid-single-digit range, and flat to down spending in international markets. Key regions such as Mexico, Saudi Arabia, and the North Sea are expected to remain soft.
- Moderating Growth Rates in Oilfield Services Segment: The company acknowledges that growth rates in Oilfield Services are moderating, and while the Industrial & Energy Technology (IET) segment is projected to grow, there appears to be no clear strategic destination regarding the balance between IET and OFSE segments. CEO Lorenzo Simonelli stated, "we don't have any destination in mind" concerning the future mix of the business units.
- Potential Overhang Due to OPEC+ Spare Capacity and Changing Regimes: The international markets face uncertainties such as the overhang of OPEC+ spare oil capacity and changing political regimes. These factors could lead to reduced activity and negatively impact Baker Hughes' business in these regions.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +8% | The revenue increase moderated compared to the prior year’s 24% jump in Q3 2023 but remained strong due to robust OFSE demand, cost-out initiatives, and favorable LNG market conditions. These factors continued to bolster top-line results amid ongoing international activity and pricing improvements. |
Industrial & Energy Technology (IET) | +21% | Building on the 37% growth in Q3 2023 and 9% in Q3 2024, IET’s revenue jumped further, fueled by Gas Technology (especially LNG project support), Climate Technology Solutions, and productivity gains. The segment also benefited from structural cost reductions and robust new energy demand. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | Q1 2025 | no prior guidance | $6.5B | no prior guidance |
Total EBITDA | Q1 2025 | no prior guidance | $1.02B | no prior guidance |
IET EBITDA | Q1 2025 | no prior guidance | $460M | no prior guidance |
OFSE EBITDA | Q1 2025 | no prior guidance | $645M | no prior guidance |
Revenue | FY 2025 | no prior guidance | $27.75B | no prior guidance |
EBITDA | FY 2025 | no prior guidance | $4.95B | no prior guidance |
Free Cash Flow Conversion | FY 2025 | no prior guidance | 45% to 50% of EBITDA | no prior guidance |
Effective Tax Rate | FY 2025 | no prior guidance | 25% to 30% | no prior guidance |
IET Orders | FY 2025 | no prior guidance | $12.5B–$14.5B (mid: $13.5B) | no prior guidance |
IET Revenue | FY 2025 | no prior guidance | $12.75B | no prior guidance |
IET EBITDA | FY 2025 | no prior guidance | $2.3B | no prior guidance |
OFSE Revenue | FY 2025 | no prior guidance | $15B | no prior guidance |
OFSE EBITDA | FY 2025 | no prior guidance | $3B | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Total Company EBITDA | Q4 2024 | 1.26 billion | 956 million (computed as Operating Income 665+ D&A 291) | Missed |
Total Company EBITDA | FY 2024 | 11.5 – 13.5 billion | 3,379 million = (Q1: 653+ 283) + (Q2: 833+ 283) + (Q3: 93+ 278) + (Q4: 665+ 291) | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
20% EBITDA Margins | Mentioned consistently in Q1–Q3 2024 (e.g., focusing on cost efficiencies, backlog conversion, and rightsizing OFSE to achieve 20% margins). | Reiterated focus on achieving 20% EBITDA for both IET and OFSE by 2025–2026, emphasizing structural improvements and confidence in meeting targets. | Consistent priority |
Supply Chain Constraints | Highlighted in Q1–Q3 2024 as delays in Gas Tech Equipment and minor margin offsets (e.g., supplier vessel delays). | No significant mention in Q4 2024, aside from mild references to possible aeroderivative tightness in early 2025. | Less prominent |
IET Growth (LNG, FPSOs, Industrial Tech) | Emphasized each quarter as a key driver, with robust backlog in LNG, FPSOs, and industrial tech. | Continued strong orders from LNG and FPSOs; anticipates rebound in 2025, driven by diverse industrial technologies. | Steady momentum |
OFSE Softness | Q1–Q3 2024 also noted NA spending cuts and concern about OPEC+ capacity impacts. | Expects ongoing softness in North America (mid-single-digit decline) and potential overhang from OPEC+ spare capacity. | Persistent caution |
Shareholder Returns | Featured each quarter, prioritizing dividend growth and share buybacks amid strong free cash flow. | Highlighted a 60%–80% FCF return commitment, with a 10% dividend increase and ongoing buybacks in Q4 2024. | Consistently reinforced |
New Energy (CCUS, Off-Grid) | Q2 2024 gave strong focus on CCUS and off-grid solutions; mentions tapered in later calls. | Mentioned decarbonization technologies and Mosaic for direct air capture but limited references to CCUS/off-grid specifically in Q4 2024. | Less cited recently |
Saudi Arabia MSC Shifts | Early 2024 (Q1) indicated no major impact on business; largely absent in Q2–Q3. | Brief reference to reduced focus on Saudi Arabia’s MSC changes in Q4 2024. | Diminished discussion |
LNG Outlook & Permitting | Q2–Q3 also cited robust LNG demand but cautioned on a U.S. LNG moratorium slowing FIDs. | Optimistic about global LNG demand (up to 100 MTPA of FIDs by 2026), balanced by U.S. permitting delays. | Mixed signals |
Margin Improvements & Sustainability | Q1–Q3 2024 attributed margin gains to self-help actions, citing confidence in sustainability. | Continued restructuring and cost discipline in Q4 2024, no explicit concerns on long-term viability. | Ongoing gains |
LNG Rebound in 2025 | Q2–Q3 2024 indicated a pause in 2024 but a likely rebound in 2025 after permitting issues resolve. | Emphasizes FIDs driving potential for 80+ MTPA; foresees stronger LNG orders over 2024 levels. | Increasing focus |
-
2025 IET Orders Outlook
Q: Can you discuss the 2025 IET order outlook?
A: Lorenzo Simonelli expressed confidence in achieving the $13.5 billion midpoint guidance for 2025 IET inbound orders, marking the third consecutive year exceeding $13 billion. Despite a 65% decline in LNG orders in 2024 due to the U.S. permitting moratorium, he anticipates LNG orders to rebound in 2025, supported by 80 MTPA expected to reach FID over the next couple of years. Strong demand in gas infrastructure, FPSOs (with 7 to 9 units per year), and increased interest in NovaLT turbines—potentially doubling orders in 2025—bolster the positive outlook. -
Margin Expansion Goals
Q: How will you achieve 20% margins in OFSE and IET?
A: Nancy Buese stated that self-help initiatives and operational excellence are key to reaching the 20% margin target for OFSE in 2025 and IET in 2026. In 2024, OFSE margins increased by 1.5 percentage points, generating incremental margins over 100%. They are focusing on rightsizing the structure, high-end technology offerings, and a production-weighted portfolio to outperform in a softer market. For IET, margin expansion is driven by volume leverage, productivity gains, higher-priced backlog in GTE, digital offerings in GTS, and improvements in Industrial Tech. They view 20% margins not as a final destination but as a waypoint for further improvement. -
Capital Returns and M&A Strategy
Q: How will you balance dividends, buybacks, and M&A?
A: Nancy Buese emphasized their commitment to returning 60% to 80% of free cash flow to shareholders, anchored by a growing dividend, which has been increased for the past four years. Since 2017, they've returned over $10 billion in dividends and buybacks. They will remain opportunistic with share repurchases and retain financial flexibility for potential tuck-in acquisitions, focusing on areas that complement their technology leadership, especially in new energy spaces. -
IET vs. OFSE Business Mix
Q: Will IET become more than half of your business?
A: Lorenzo Simonelli acknowledged that while both IET and OFSE are critically important and share capabilities and customers, the IET segment is expected to grow faster due to its considerable addressable market. Over time, IET will comprise a larger portion of Baker Hughes' portfolio, but there is no specific target for the business mix. -
Gas Tech Services Growth Drivers
Q: Which factors will drive GTS growth in the next years?
A: Lorenzo Simonelli highlighted that mix will be the biggest driver for Gas Tech Services growth, especially the increasing LNG installed base, which is expected to grow by over 50% through 2030. This outpaces the overall installed base growth of 20% and generates more service revenue due to high attachment rates. Upgrades are also poised for growth, with a 10% uptick in the second half of 2024 and the highest order intake since 2020 in the fourth quarter. Pricing and digital offerings will contribute as well. -
2025 OFSE Revenue Outlook
Q: What are the expectations for OFSE revenue in 2025?
A: Lorenzo Simonelli indicated that they anticipate 2025 OFSE revenue to be slightly lower than 2024, with a projected 4% decline at the midpoint. In North America, spending is expected to decrease in the mid-single-digit range due to capital discipline among operators. International markets are expected to be flat to down year-on-year, with softness in Mexico, Saudi Arabia, and the North Sea, partially offset by strength in Brazil and sub-Saharan Africa. Despite lower revenues, they expect to outperform due to a production-weighted portfolio and continued focus on mature asset solutions and brownfield opportunities. -
Free Cash Flow Conversion
Q: Can you achieve 45–50% free cash flow conversion in 2025?
A: Nancy Buese expressed confidence in maintaining the 45% to 50% free cash flow conversion target for 2025, driven by working capital efficiency—such as tighter collections and improved inventory turns—and tax management efforts aimed at lowering the cash tax and book rates. Structurally higher margins will also support free cash flow improvement. -
Expanding Gas Turbines Market
Q: How are you expanding turbines beyond oil and gas?
A: Lorenzo Simonelli explained that they are enhancing their industrial gas turbine portfolio to make inroads into markets outside oil and gas, such as data centers, industrial settings, and power generation. Their NovaLT turbines, below 150 megawatts, provide distributed power solutions behind the meter and off-grid, addressing the growing data center market and the need for compression and power in gas processing and pipelines.