Money Matters, Simplified.
How Halliburton May Be Failing You
Thu, 12/09/2010 - 11:56 by Seth Jayson
Margins matter. The more Halliburton Company (NYSE: HAL) keeps of each buck it earns in revenue, the more money it has to invest in growth, fund new strategic plans, or (gasp!) distribute to shareholders. Healthy margins often separate pretenders from the best stocks in the market. That's why I check on my holdings' margins at least once a quarter. I'm looking for the absolute numbers, comparisons to sector peers and competitors, and any trend that may tell me how strong Halliburton Company's competitive position could be.
Here's the current margin snapshot for Halliburton Company and some of its sector and industry peers and direct competitors.
Company | TTM Gross Margin | TTM Operating Margin | TTM Net Margin |
|---|---|---|---|
| Halliburton Company | 16.2% | 14.9% | 8.9% |
| Baker Hughes (NYSE:BHI) | 22.9% | 9.6% | 4.5% |
| Schlumberger (NYSE:SLB) | 22.9% | 16.4% | 16.7% |
| RPC (NYSE: RES) | 42% | 15.3% | 9.3% |
Source: Capital IQ, a division of Standard & Poor's. TTM = trailing 12 months.
Unfortunately, that table doesn't tell us much about where Halliburton Company has been, or where it's going. A company with rising gross and operating margins often fuels its growth by increasing demand for its products. If it sells more units while keeping costs in check, its profitability increases. Conversely, a company with gross margins that inch downward over time is often losing out to competition, and possibly engaging in a race to the bottom on prices. If it can't make up for this problem by cutting costs -- and most companies can't -- then both the business and its shares face a decidedly bleak outlook.
Of course, over the short term, the kind of economic shocks we recently experienced can drastically affect a company's profitability. That's why I like to look at five fiscal years' worth of margins, along with the results for the trailing 12 months (TTM), the latest fiscal year, and the latest fiscal quarter (LFQ). You can't always reach a hard conclusion about your company's health, but you can better understand what to expect, and what to watch.
Here's the margin picture for Halliburton Company over the past few years.
(Because of seasonality in some businesses, the numbers for the last period on the right -- the TTM figures -- aren't always comparable to the FY results preceding them.)
Here's how the stats break down:
- Over the past five years, gross margin peaked at 27.2% and averaged 22.6%. Operating margin peaked at 24.6% and averaged 20.6%. Net margin peaked at 23.3% and averaged 16.9%.
- TTM gross margin is 16.2%, 640 basis points worse than the five-year average. TTM operating margin is 14.9%, 570 basis points worse than the five-year average. TTM net margin is 8.9%, 800 basis points worse than the five-year average.
With recent TTM operating margins below historical averages, Halliburton Company has some work to do.
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