Baker Hughes Inc. (BHI) reported its third quarter results of 26 cents per share, well below the Zacks Consensus Estimate of 36 cents and year-earlier quarter earnings of $1.39. Before adjusting one-time items, earnings were 18 cents per share.

Though the company’s results came in below expectations due to lower activity levels in all geographical regions, fundamentals remain strong as the North American gas-directed drilling gain traction and benefits from the pending BJ Services (BJS) acquisition are expected.

Revenue from Baker Hughes’ Oilfield operations was $2.23 billion, down 26% from the year-ago quarter and 4% from the previous quarter. Pre-tax operating profits decreased nearly 72% year-over-year and nearly 22% sequentially to $187 million. Pre-tax operating margin for the quarter was 8%, compared to 22% in the year-ago quarter and 10% in the previous quarter.

Revenue from the Drilling and Evaluation segment decreased nearly 33% year-over-year and 6% sequentially to $1.05 billion. The segment’s pre-tax operating profits were down 88% year-over-year and 43% sequentially. Pre-tax operating margin in the quarter was 4%, compared to 22% in the year-earlier quarter and 7% in the previous quarter.

In the Completion and Production segment, revenue was down approximately 19% year-over-year and more than 3% sequentially to $1.18 billion. The segment’s pre-tax operating profits decreased 55% year-over-year and 12% over the previous quarter, while pre-tax operating margin was 12%, compared to 22% in the year-earlier quarter and 14% in the previous quarter.

At the end of the quarter, Baker Hughes had $1.49 billion in cash and cash equivalents, while long-term debt stood at $1.81 billion, representing a debt-to-capitalization ratio of 20.1%. The company spent $222 million on capital expenditures during the quarter dividend payments were $47 million.

We believe that Baker Hughes’s strong portfolio of products and services, solid balance sheet and sufficient liquidity should help it post better-than-average results in North America and enable it to penetrate international markets. Additionally, the BJ Services acquisition should help it close the international revenue growth and margin gap with its major peers.

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