Baker Hughes Company (BKR) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Outstanding Second Quarter Results

  Baker Hughes delivered strong operational performance across the company, with a 46% year-over-year EPS growth and a 25% increase in EBITDA.

• Record New Energy Orders

  The company booked record new energy orders of $445 million during the quarter, trending toward the high end of the year's guidance range of $800 million to $1 billion.

• Significant Gas Tech and Climate Tech Solutions Contracts

  Secured major contracts, including a Gas Tech and Climate Tech Solutions contract in Asia Pacific for electric-driven compression and power generation, enhancing gas operations and reducing carbon intensity at an LNG facility.

• Strong Order Momentum in IET

  Industrial and Energy Technology (IET) segment saw strong orders of $3.5 billion, driven by non-LNG equipment bookings and significant offshore topside contracts.

• Improved Operational Consistency

  Marks the sixth consecutive quarter of meeting or exceeding the midpoint of quarterly EBITDA guidance, demonstrating improved operational consistency and execution.

Pessimistic Highlights

• Economic Uncertainty and Volatility

  The macro view indicates softer global demand and continued economic uncertainty, with oil prices experiencing some volatility during the second quarter.

• Revised Global Upstream Spending Outlook

  The global upstream spending outlook for the year has been revised slightly lower due to North American softness, with year-over-year declines in North America spending expected to be down in the mid-single-digits.

Company Outlook

• Bullish on Company Outlook

  Increasingly bullish on the outlook for the company, particularly the IET business, benefiting from strength in multiple cycles including LNG, gas infrastructure, offshore, and new energy.

• EBITDA Guidance Increase

  The midpoint of the EBITDA range for the full year 2024 has been increased by 5%, attributed to strong IET performance, with expectations of at least 20% EBITDA growth for the second consecutive year.

• Continued Margin Improvement

  Focused on driving sustainable margin improvements and remain on track to deliver 20% EBITDA margins in OFSC and IET, with EBITDA margins expected to be in the high teens range during the second half of this year.

Q & A Highlights

• Q: Can you elaborate on the drivers for margin improvement in both segments? (Luke Lemoine, from Piper Sandler)

  A: The improvement is attributed to restructuring, streamlining processes, reducing duplication, and focusing on cost competitiveness and execution. IET is adopting a lean mindset, and OFSC is focusing on service delivery improvements and profitable growth. (Lorenzo Simonelli)

• Q: What are the drivers behind the increased EBITDA guidance for this year? (Luke Lemoine, from Piper Sandler)

  A: The increase is driven by stronger revenue expectations and margin upgrades in the IET segment, with revenues expected to increase by about 20% this year, 8% above prior guidance. (Nancy Buese)

• Q: Can you discuss the role of Baker Hughes in solutions outside of big LNG projects, particularly in distributed power systems? (James West, from Evercore)

  A: Baker Hughes plays a significant role in distributed power systems, including off-grid solutions and micro-grids, leveraging gas turbine technology and modular capabilities for data centers, airports, and oil and gas markets. (Lorenzo Simonelli)

• Q: What are the key drivers of non-LNG growth in Gas Tech, and how does this impact the IET order book for the back half of the year and into 2025? (Arun Jayaram, from JPMorgan Securities)

  A: Non-LNG growth is driven by onshore/offshore production and gas infrastructure, with strong order momentum expected to continue. LNG orders are anticipated to rebound, contributing to robust orders into 2025. (Lorenzo Simonelli)

• Q: Looking into 2025, what are the pluses and minuses we should consider, especially regarding IET backlog and international oilfield service strength? (Stephen Gengaro, from Stifel)

  A: Expect more of the same positive growth, with a focus on margin improvement and order momentum across LNG, gas infrastructure, offshore, and new energy. International growth is expected to continue at a slower pace. (Lorenzo Simonelli)