Q3 2026 Halliburton Company Earnings Conference Call - HALLIBURTON CO

Financial Performance:

• Q3 total revenue reached $5.7 billion, exceeding expectations; international revenue grew 9% YoY to $3.5 billion, while North America revenue declined 9% YoY to $2.2 billion.
• Adjusted operating margin for Q3 was 12.8% with $731 million in adjusted operating income; adjusted net income per diluted share was $0.60.
• Free cash flow in Q3 was lower than Q2 due to working capital needs (inventory buildup for SAP S4 and logistics); Q4 is expected to see a sequential increase with approximately $1.6 billion in FCF projected for the full year.
• Capital expenditures for Q3 were $266 million; full-year 2026 CapEx is guided at approximately $1.1 billion.
• The company repurchased approximately $250 million of common stock during the quarter.
• The completed rollout of SAP S4 is expected to contribute $120–$150 million in annual cost savings, part of a broader $250–$300 million cost reduction target for 2027.

Guidance and Future Outlook:

• Early 2027 outlook projects mid-single-digit revenue growth and operating margin expansion of approximately 200 basis points to reach ~15%.
• Q4 2026 guidance expects total revenue to remain flat to Q3 (~$5.7 billion) and operating margins to improve by 70 basis points, implying EPS of $0.62–$0.64.
• North America Fracking is assumed to be flat for 2027 in the base case, though management views any recovery as significant upside; the growth plan is not dependent on a North American Frack recovery.
• International revenue is projected to grow roughly 12% YoY in 2026, with specific expectations for continued growth in Latin America and the Middle East.
• Management anticipates a multi-year demand cycle driven by the need to restore energy security and replace lost global oil supply following recent geopolitical disruptions.

Business Segments and Product Lines:

• Diving & Exploration (D&E): Outperformed expectations with sequential revenue growth and a 150 basis point improvement in operating income margins, driven by strong performance in the Middle East, U.S. land, and Latin America.
• Completions & Production (C&P): Revenue and margins were below expectations due to lower North America fracking activity and slower startup of a Saudi contract.
• North America: While frack activity softened, non-frack segments grew 23% YoY; Sperry drilling, drill bits (HyperSteer), and drilling fluids (Bayward) showed strong demand driven by complex, long-lateral wells.
• International: Strong momentum in production services (North Sea frack vessel startup), artificial lift (multi-year ESP contract in Argentina, expansions in UAE/Congo/Brazil), and new market entry in Venezuela with ESP deliveries scheduled.
• Growth Engines: On track to add $3 billion in annual revenue by 2028 across production services, drilling, unconventionals, and artificial lift; currently operating in over six countries for unconventionals.

Market and Competitive Landscape:

• The global energy market faces a supply shortfall estimated at nearly 3 billion barrels lost since the onset of conflicts, driving a multi-year demand for oilfield services.
• Halliburton's international growth engines are "ahead of schedule," with a tight market environment creating opportunities for pricing firming and selective crew movement to maximize returns.
• Latin America is identified as a primary growth driver, with significant wins in Venezuela (major operators including ENI, Total, Chevron entering) and Argentina.
• Middle East activity remains resilient despite geopolitical uncertainty; major projects like Jafura completions and IFMS in Iraq are driving future volume, with a 5–8 year timeline for the Iraq project.
• North America fracking market is in a "muddle along" phase with private E&Ps driving rig counts, though pricing is beginning to stabilize as customers recognize the tight service capacity.

Risks and Challenges:

• Geopolitical instability, particularly in the Middle East and Ukraine, creates inflationary headwinds, logistics challenges (Strait of Hormuz), and near-term uncertainty.
• Continued low activity in North America hydraulic fracturing impacts short-term segment results and C&P margins.
• Implementation risks associated with the new SAP S4 global transformation system, though this is currently viewed as a long-term margin enabler.
• Potential for slower-than-expected budget approvals from large integrated oil companies in the coming fiscal year.

Management Commentary and Tone:

• Management tone is highly confident, emphasizing a strategic shift away from commoditized activities toward technology-driven, differentiated solutions.
• CEO Jeff Miller explicitly stated the 2027 plan "does not require any recovery in North America Frack," viewing any potential recovery as pure upside.
• CFO Eric Correa and COO Shannon Slocum highlighted successful cost reduction programs and the strategic "right-sizing" of the business, with a focus on delivering high returns rather than market share.
• Management expressed strong belief in the "energy security" narrative driving a multi-year upcycle for the industry.

Analyst Questions and Answers:

• 2027 Margin Drivers: Analysts questioned the 200bps margin expansion; management clarified that ~half comes from cost savings ($250–$300M from structural cuts and SAP S4), with the remainder from incremental margins on revenue growth (20–30% range).
• North America Fracking: Questions regarding the disconnect between rising rig counts and measured completion activity were answered with indications of pricing firming and private operator activity increasing.
• International Exposure: Analysts sought details on Latin America and Venezuela; management confirmed "open for business" status in Venezuela with a potential return to >$500M in business and significant growth in Argentina and Suriname.
• SAP S4 Impact: Discussed as a major enabler for simplification and AI adoption, with savings expected to materialize over the transition period.
• Pricing Dynamics: Management noted that the market is tight with limited capacity, allowing for deliberate crew moves to higher-priced contracts and signaling early stages of a broader pricing cycle in North America.

Other Key Points:

• Halliburton is now live on the global SAP S4 transformation, completing a major enterprise system overhaul.
• The company is expanding its Artificial Lift footprint, now operating in 21 countries, with new installations in the UAE, offshore Congo, and Brazil.
• Management views the current geopolitical supply disruptions as a structural shift that will drive demand for decades to rebuild inventories and production capacity.
• The company remains confident that the 2027 outlook is balanced against inflationary pressures, with cost savings offsetting potential input cost increases.