HAL Q2 2025: Margins Miss by 80bps, Q3 Guided Down 150-200bps
- Technological Leadership: Management reiterated its competitive edge by emphasizing innovations such as Zeus IQ, iCruise, and automation platforms that continue to drive customer value and efficiency, positioning Halliburton favorably as markets recover.
- Disciplined Cost Management: Executives stressed a rigorous approach to margin protection by only deploying assets where they generate economic returns and by actively reducing variable and fixed costs—measures that help safeguard profitability during softer market periods.
- Expanding International Opportunities: The team highlighted significant growth potential in international markets—including opportunities in unconventionals and artificial lift segments—underscoring solid technology-driven wins that could drive revenue expansion abroad.
- Worsening margins amid pricing headwinds: The Q&A detailed that margins in the Completion and Production division were nearly 80 basis points below guidance in Q2, driven by lower pricing for U.S. Land services and reduced frac activity in Saudi Arabia, with Q3 guidance calling for further margin declines of 150–200 basis points.
- Softening market activity and scheduling gaps: Management noted significant schedule gaps from operators—particularly in North America—due to reorganization efforts and cautious capital expenditures, suggesting that lower activity levels could further dent revenue and profitability.
- Negative impacts from tariffs and cost pressures: Tariff impacts, especially on artificial lift (a major revenue contributor internationally), combined with increased variable and fixed costs that management is trying to cut, create uncertainty and potential pressure on earnings if market conditions do not improve quickly.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | -5.5% (from $5,833m in Q2 2024 to $5,510m in Q2 2025) | The overall revenue decline reflects a broader contraction across key segments, largely driven by weaker drilling and completion services, echoing challenges seen in earlier periods. |
Completion & Production | -6.7% (from $3,401m in Q2 2024 to $3,171m in Q2 2025) | The decrease is primarily attributable to declining pressure pumping services and lower completion tool sales, a downward trend that continued from previous periods. |
North America Revenue | -9% (from $2,481m in Q2 2024 to $2,259m in Q2 2025) | This drop is driven mainly by reduced stimulation activity and decreased completion tool sales in U.S. land, mirroring performance challenges observed in earlier quarters. |
Latin America Revenue | -10.9% (from $1,097m in Q2 2024 to $977m in Q2 2025) | The significant decline stems from lower activity across multiple product lines—especially in Mexico—and reduced completion tool sales, continuing a trend noted in prior periods. |
Europe/Africa/CIS Revenue | +8.3% (from $757m in Q2 2024 to $820m in Q2 2025) | The revenue growth is primarily the result of improved completion tool sales and enhanced fluid services, continuing regional gains observed recently. |
Middle East/Asia Revenue | -2.9% (from $1,498m in Q2 2024 to $1,454m in Q2 2025) | The modest decline reflects offsetting factors—gains in certain product services are partially negated by reduced drilling and completion tool sales—consistent with patterns from earlier quarters. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue (C&P Division) | Q3 2025 | increase by 1% to 3% | decrease by 1% to 3% | lowered |
Operating Margins (C&P Division) | Q3 2025 | remain approximately flat | decrease by 150 to 200 basis points | lowered |
Revenue (D&E Division) | Q3 2025 | flat to down 2% | decrease by 1% to 3% | lowered |
Operating Margins (D&E Division) | Q3 2025 | decline by 125 to 175 basis points | improve by 125 to 175 basis points | raised |
Corporate Expenses | Q3 2025 | flat | increase by approximately $5 million | raised |
SAP S/4 Migration Expenses | Q3 2025 | $30 million | $32 million | raised |
Net Interest Expense | Q3 2025 | increase by $5 million | remain flat at approximately $92 million | lowered |
Other Net Expense | Q3 2025 | increase by $5 million | increase to approximately $45 million | raised |
Effective Tax Rate | Q3 2025 | 23% | 23.5% | raised |
Tariff Impact | Q3 2025 | no prior guidance | $35 million or $0.04 per share | no prior guidance |
Capital Expenditures | FY 2025 | 6% of revenue | 6% of revenue | no change |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Completion & Production (C&P) Revenue | Q2 2025 | “Sequential revenue is expected to increase by 1% to 3% in Q2 2025.” | 3,171(up 1.63% from Q1 2025: 3,120) | Met |
Drilling & Evaluation (D&E) Revenue | Q2 2025 | “Sequential revenue is expected to be flat to down 2% in Q2 2025.” | 2,339(up 1.83% from Q1 2025: 2,297) | Beat |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Technological Leadership & Innovation | Emphasized across Q1 2025 (Zeus IQ closed‐loop systems, autonomous fracturing, directional drilling ), Q4 2024 (investments in electrification, automation with Octiv Auto Frac, Sensori, and broader portfolio ) and Q3 2024 (international technology wins and advanced drilling tools ) | Focused in Q2 2025 on accelerating technology adoption (rapid rollout of Zeus electric fleets, integrated iCruise/Logix automation, and enhanced international wins ) | **Continued emphasis with further advanced adoptions. The company remains committed to tech leadership, now with accelerated integration of new digital and electrification solutions. ** |
International Market Expansion & Regional Challenges | Discussed in Q1 2025 with mixed performance in regions (Mexico, Norway, Saudi Arabia) , in Q4 2024 highlighting growth in Middle East/Asia and regional challenges in Mexico , and in Q3 2024 emphasizing revenue growth drivers and addressing regional issues (North Sea, Middle East, Latin America) | In Q2 2025, expanding international revenue driven by Latin America and Europe/Africa, while noting challenges in Saudi Arabia, Mexico, and Kuwait; detailed contract wins in unconventional and artificial lift segments | **The focus remains consistent: growing international markets amid persistent regional challenges. New contract wins and technological plays are helping offset declines in specific regions. ** |
Cost Management, Margin Compression & Pricing Pressure | Q1 2025 focused on cost rationalization with severance charges, margin pressures in C&P and D&E ; Q4 2024 detailed declines in both C&P and D&E margins amid pricing pressures ; Q3 2024 noted margin compression and software cost delays | Q2 2025 continues to highlight cost reductions (adjustments in variable/fixed costs, fleet retirements), margin declines in both C&P and D&E, and explicit pricing headwinds (notably in North America) | **Persistent emphasis on tight cost management and margin pressures. The current period provides more granular tariff and pricing impact details, suggesting ongoing market challenges. ** |
Fleet Commitment, Efficiency & Demand Trends | Q1 2025 stressed high percentages of contracted Zeus fleets and efficient operations ; Q4 2024 highlighted fully contracted fleets and efficiency initiatives via new tech ; Q3 2024 reinforced strong fleet commitments and advanced tech adoption | Q2 2025 reaffirms commitment to fleet management with accelerated fleet attrition in uneconomic segments, continued integration of Zeus technology, and acknowledgement of subdued North American demand with cautious near-term outlook | **Stable commitment with ongoing efficiency gains through advanced technologies. Demand remains cautious, but fleet strategy stays robust with disciplined retirement and innovation. ** |
Revenue Growth Strategy & Capital Return Initiatives | Q1 2025 emphasized leveraging technology and collaboration for international wins and maintaining shareholder returns via buybacks and dividends ; Q4 2024 focused on international and North American growth despite declining volumes coupled with strong cash returns ; Q3 2024 stressed systematic buybacks and steady free cash flow generation | Q2 2025 detailed revenue growth through international expansion (particularly in unconventionals) and technology-enabled operations, with clear capital return actions such as share repurchases and disciplined CapEx (returning over 50% of free cash flow mid‐year) | **Consistent strategy across periods. The current period reiterates a balanced growth approach combining technology, international contract wins, and disciplined capital allocation to drive shareholder returns. ** |
Tariff & Regulatory Uncertainty | Q1 2025 mentioned tariff impacts as a per‐share charge with division-specific effects ; Q3 2024 discussed regulatory risks in the Gulf of Mexico and broader industry benefits from reduced regulatory burdens ; Q4 2024 did not mention this topic | Q2 2025 explicitly quantified tariff impacts (e.g. $27 million hit, expecting further impact of $35 million in Q3) and noted broader market uncertainty driven by trade tensions and geopolitical unrest | **Enhanced focus in the current period on quantitative tariff impacts, with clear actions (supply chain rewiring) underway. Regulatory uncertainty is acknowledged less broadly now than in Q3 2024 but remains significant. ** |
R&D Investment & Execution Risk in Future Technologies and M&A | Q1 2025 touched on strategic technology investments (Zeus IQ, equity in VoltaGrid, acquisition of Optim Subsea) ; Q3 2024 discussed R&D in intervention technologies and noted execution risks in projects like the SAP S/4 implementation ; Q4 2024 mentioned technology development waves and bolt-on M&A | No specific discussion in Q2 2025; the topic was not mentioned in the current period | This topic is no longer mentioned in Q2 2025, suggesting a potential deprioritization relative to other immediate operational and market challenges. [N/A] |
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Free Cash Flow
Q: Is free cash flow target intact for 2025?
A: Management reaffirmed a strong outlook of $1.8–$2.0B free cash flow, supporting robust shareholder returns. -
Margin Outlook
Q: What drove softer C&P margins this quarter?
A: Lower pricing in U.S. Land and reduced Saudi frac activity pushed margins about 80bps below guidance. -
Q4 Guidance
Q: How clear is the Q4 revenue outlook?
A: They expect flat to slightly lower Q4 revenue with further margin softening driven by seasonal effects and white-space in the U.S. frac market. -
Zeus CapEx
Q: Will Zeus build spending slow down this period?
A: Management plans to ease costs by pausing new Zeus builds, as improved margins arise from lower mobilization expenses. -
US Pricing
Q: What is the strategy for U.S. pricing?
A: They will work only at economic rates, avoiding uneconomic work while managing higher fleet attrition from increased pressures. -
Frac Outlook
Q: What drives the North American frac outlook?
A: Customers face significant schedule gaps and white-space now, with expectations for recovery later, possibly by 2026. -
Cycle Reset
Q: Is the E&P portfolio in reset mode?
A: Programs are being reset by stacking uneconomic fleets amid declining activity, hinting at a Q4 bottom. -
Saudi Tender
Q: What is the outlook for the Saudi tender?
A: They remain disciplined on the Jafurah tender, leveraging technology with activity likely resuming in the near term. -
Portfolio Pruning
Q: Will the portfolio be trimmed soon?
A: The focus will be on streamlining to profitable, technology-driven segments while shedding underperforming assets. -
International Unconventionals
Q: How significant are international unconventionals now?
A: They are experiencing double-digit, technology-led growth, making this segment a progressively larger part of revenue.