We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Baker Hughes to Cut Net Capex by 20%, Book $15B Writedown
Read MoreHide Full Article
Baker Hughes Company (BKR - Free Report) recently announced plans to slash 2020 net capital spending by more than 20%. Also, the company conducted an interim quantitative impairment test at first-quarter end, in the wake of coronavirus-induced unfavorable business scenario. As such, it expects to book a $15-billion non-cash goodwill impairment charge in first-quarter 2020, which is not expected to impact cash flow.
Moreover, in response to the current market conditions, Baker Hughes has adopted a plan that will lead to restructuring, impairment, and other charges of $1.8 billion. Notably, of the total amount, $1.5 billion is expected to be recorded in the first quarter. Future cash expenditures related to the charges mentioned above will likely be $500 million, with an estimated payback within a year.
Spending cut by 20% from 2019 levels will free up some cash, which will help it navigate through oil and gas price crash, and the demand destruction from the coronavirus pandemic. The company recorded capital expenditure of $976 million in 2019.
Investors should also know that Baker Hughes’ capital budget cut comes at a time when its clients are reducing spending in U.S. shale plays. Energy majors like Exxon Mobil Corporation (XOM - Free Report) and Chevron Corporation (CVX - Free Report) have curbed their 2020 capital spending plan and limited exposure to shale plays like the Permian Basin. Major oilfield service provider Schlumberger Limited (SLB - Free Report) intends to decrease 2020 spending by 30% from 2019 levels and reduce the number of active drilling rigs in North America.
Baker Hughes is banking on financial strength to survive the current market uncertainty. As of Dec 31, 2019, it had cash and cash equivalents of $3,249 million, and a long-term debt of $6,301 million, representing a debt-to-capitalization ratio of 16.1%. Moreover, the firm has a revolving credit facility of $3 billion. At the end of the first quarter, the company had no borrowings under the revolving credit facility.
Price Performance
Baker Hughes, which currently has a Zacks Rank #5 (Strong Sell), has plunged 48.1% year to date compared with 36.8% decline of the industry it belongs to.
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
Baker Hughes to Cut Net Capex by 20%, Book $15B Writedown
Baker Hughes Company (BKR - Free Report) recently announced plans to slash 2020 net capital spending by more than 20%. Also, the company conducted an interim quantitative impairment test at first-quarter end, in the wake of coronavirus-induced unfavorable business scenario. As such, it expects to book a $15-billion non-cash goodwill impairment charge in first-quarter 2020, which is not expected to impact cash flow.
Moreover, in response to the current market conditions, Baker Hughes has adopted a plan that will lead to restructuring, impairment, and other charges of $1.8 billion. Notably, of the total amount, $1.5 billion is expected to be recorded in the first quarter. Future cash expenditures related to the charges mentioned above will likely be $500 million, with an estimated payback within a year.
Spending cut by 20% from 2019 levels will free up some cash, which will help it navigate through oil and gas price crash, and the demand destruction from the coronavirus pandemic. The company recorded capital expenditure of $976 million in 2019.
Investors should also know that Baker Hughes’ capital budget cut comes at a time when its clients are reducing spending in U.S. shale plays. Energy majors like Exxon Mobil Corporation (XOM - Free Report) and Chevron Corporation (CVX - Free Report) have curbed their 2020 capital spending plan and limited exposure to shale plays like the Permian Basin. Major oilfield service provider Schlumberger Limited (SLB - Free Report) intends to decrease 2020 spending by 30% from 2019 levels and reduce the number of active drilling rigs in North America.
Baker Hughes is banking on financial strength to survive the current market uncertainty. As of Dec 31, 2019, it had cash and cash equivalents of $3,249 million, and a long-term debt of $6,301 million, representing a debt-to-capitalization ratio of 16.1%. Moreover, the firm has a revolving credit facility of $3 billion. At the end of the first quarter, the company had no borrowings under the revolving credit facility.
Price Performance
Baker Hughes, which currently has a Zacks Rank #5 (Strong Sell), has plunged 48.1% year to date compared with 36.8% decline of the industry it belongs to.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>