Oilfield services giant Halliburton Co. (HAL: 27.95 -0.15 -0.53%) is scheduled to report its second quarter 2010 results on Monday, July 19, before the opening bell.The Zacks Consensus Estimate for the to-be-reported quarter is 36 cents per share (with an upside of 3%), compared to the 30 cents per share earned in the year-earlier period.
First Quarter Recap
The world’s second-largest oilfield service provider after Schlumberger Ltd.(SLB: 58.10 -0.57 -0.97%) reported profit of 28 cents per share in the first quarter of 2010, 2 cents above the Zacks Consensus Estimate. Halliburton believed strengthening activity in North America helped it to top expectations, offsetting weak demand across Latin America. During the quarter, North America accounted for approximately 45% of the company’s total revenue as well as its operating income.
Drilling Activity Picks up in North America
As reinforced by the first quarter results, the all-important North American activity levels (to which the company is heavily exposed through its market-share-leading pressure-pumping business) are showing signs of strength and sustainability. Margins had bottomed in most basins during the third quarter of 2009 and now appear to be rapidly gaining steam, as the industry looks to balance supply growth with recovering hydrocarbon demand.
Pressure pumping (an umbrella term used to describe a number of vital services performed on new and existing wells) demand is on a secular uptick and the market is now enjoying around 100% effective utilization. Pricing, which remains well below 2006 levels, has increased meaningfully from the last year’s lows.
Halliburton is best suited to gain leverage from these factors, having the highest exposure to pressure pumping. As such, we expect the company to report very strong North American operating income and revenue growth.
Agreement of Analysts
The following table reflects a strong positive agreement among the analysts regarding Halliburton’s outlook. In particular, we see a notable number of estimate revisions over the past 30 days.
Out of 28 analysts covering the stock, 15 have revised upwards their estimates for the second quarter of 2010, while 3 have gone in the opposite direction.
Magnitude of Estimate Revisions
As a result of the analysts revising estimates over the past 30 days, the Zacks Consensus Estimates for the second quarter of 2010 has gone up 2 cents (from 34 cents to 36 cents). The increase is based on the strengthening North American markets, steady international growth expectations, and rebounding activity levels.
Positive Surprise History
The company has a history of positive earnings surprises, surpassing the Zacks Consensus Estimate in each of the last 4 quarters. Halliburton has performed consistently well during this period with its average earnings surprise being 10.43%. This implies that the company has beaten the Zacks Consensus Estimate by 10.43% over the last four quarters.
As such, we will not be surprised if Halliburton reports better-than-expected results, yet again, driven by improved U.S. pressure pumping activity.
Limited GoM Liability
Limited GoM LiabilityWe are also encouraged by the news from the congressional hearings in May that absolved Halliburton of the liability in the huge oil spill accident in the Gulf of Mexico (GoM). Though the company may be subject to legal challenges, it worked under a limited liability contract and as per Congressional testimony, performed work as instructed by BP plc (BP: 37.9966 -0.9234 -2.37%).
As a reminder, on April 20, offshore driller Transocean Inc’s (RIG: 54.07 -0.63 -1.15%) ultra-deepwater Horizon drilling platform, contracted to British major BP, sank following an explosion while operating in the U.S. GoM off the coast of Louisiana. The incident killed 11 workers and caused what is considered the worst oil spill in U.S. history. Halliburton, which provided blowout-prevention equipment, had been embroiled in the incident.
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