UPDATE 2-Baker Hughes Q1 profit down, shares drop 5 pct

* Q1 EPS $0.41 vs est of $0.38

* Q2 profit guidance short of some estimates

* Shares fall as much as 5.3 pct

* Oilfield services sector hit by weaker prices
(Adds CEO comments from analyst call, background, share
price)

By Braden Reddall

SAN FRANCISCO, May 4 (BestGrowthStock) – Oilfield services company
Baker Hughes Inc (BHI.N: ) posted a profit that topped estimates,
driven by increased drilling and margins in North America, but
its shares fell on its cautious outlook and an oil-led slump in
the sector.

Profit margins are recovering from a drilling slump caused
by a recessionary drop in energy prices last year, and Baker
Hughes expects revenue growth in the near term to be driven
largely by increased activity, rather than prices.

The company gave a second-quarter operating profit forecast
— including its BJ Services acquisition and leaving out some
depreciation and amortization — in the lower 40
cents-per-share range, which fell short of some expectations.

Baker Hughes shares fell as much as 5.3 percent on Tuesday
morning, as the sector broadly took a hit from a drop in crude
oil prices.

The company said first-quarter net income fell to $129
million, or 41 cents a share, from $195 million, or 63 cents a
share, a year earlier. Analysts had expected 38 cents a share,
according to the average on Thomson Reuters I/B/E/S.

Revenue fell 5 percent to $2.54 billion, but topped market
estimates of $2.45 billion.

Larger rivals Schlumberger Ltd (SLB.N: ) and Halliburton Co
(HAL.N: ) both posted better-than-expected first-quarter profit (Read more your timing to make a profit.)s,
also helped by a stronger North American market.

But like Baker Hughes, they expected growth in the next 18
months to come out of the Eastern Hemisphere. [ID:nN23218584]

In North America, Baker Hughes said the number of rigs
drilling for oil would keep growing in the second half of 2010,
but the natural gas rig count would peak this quarter.

With the North American offshore drilling industry worried
about the long-term impact of the Gulf of Mexico oil spill,
Chief Executive Chad Deaton said Baker Hughes had moved its
equipment off three or four rigs due to the oil slick.

“Other than that, we’re not seeing deterioration in
activity,” he told analysts on a conference call. “If it stops
some of the drilling out five years from now under the new
leases that the president talked about, maybe that will have
some effect at that time.”

The oil leak forced President Barack Obama to suspend
politically sensitive plans to expand offshore oil drilling,
which had been unveiled last month. [ID:nN04241766]

CLOSING THE DEAL WITH BJ

Houston-based Baker Hughes just received U.S. regulatory
clearance last week for its deal to buy BJ Services, nearly
eight months after it was announced. [ID:nBNG500189]

Baker Hughes said BJ Services revenue for the three months
ended March 31 was $1.1 billion. BJ’s profit before tax was $59
million excluding $31 million of merger costs, a $16 million
loss associated with a liquidated equipment partnership and a
$9 million loss from the devaluation of Venezuela’s currency.

Baker Hughes expects the combined company to fork over $1.7
billion to $1.8 billion in capital expenditure this year.

Baker Hughes shares were down 4.5 percent at $48.43 on the
New York Stock Exchange in late morning, off an earlier low at
$48.04.

Investment Tools

(Reporting by Braden Reddall, with additional reporting by
Anuradha Ramanathan in Bangalore; Editing by Maju Samuel and
Matthew Lewis)

UPDATE 2-Baker Hughes Q1 profit down, shares drop 5 pct