Baker Hughes Earnings: International Oil and Gas Activity Will Strengthen Its 2023 Performance

No-moat Baker Hughes BKR posted a solid start to 2023 as strong offshore activity offset the seasonal weakness typically reflected in first-quarter results and as the firm converts its ever-increasing gas technologies backlog. Total revenue was $5.7 billion, up 18% year over year and down 3% sequentially. Firmwide adjusted EBITDA margin also declined slightly—about 240 basis points quarter over quarter—due to seasonally depressed oilfield service demand, a higher mix of lower-margin equipment revenue, and continued supply chain challenges. Despite modest near-term headwinds in the quarter, our longer-term outlook is unchanged, and we maintain our $34 fair value estimate following the results.

We expect Baker Hughes’ performance will steadily improve through 2023 as international production activity maintains the momentum initially seen in 2022. Latin America was by far the strongest region for the firm’s oilfield services and equipment, or OFSE, segment this quarter. We’re confident robust activity will persist, especially as offshore projects gain traction after years of stalled investment. Baker Hughes continues progressing on its rightsizing initiatives for its subsea business, which we expect will support profitable growth over the next several quarters. By our estimate, the overall OFSE segment will return to prepandemic performance levels this year, with 2023 revenue surpassing $15 billion and an EBITDA margin of 17%.