9 May

BHGE and NOV’s Free Cash Flow in 1Q18

WRITTEN BY Alex Chamberlin FEATURED IN Price Movement Observations

Free cash flow 

In this part, we’ll discuss Baker Hughes, a GE Company (BHGE), and National Oilwell Varco’s (NOV) FCF (free cash flow) growth in 1Q18. FCF is the CFO (cash flow from operations) less the capex.

BHGE and NOV’s Free Cash Flow in 1Q18

Baker Hughes’s 1Q18 FCF was higher

Baker Hughes’s FCF was $177 million in 1Q18. Baker Hughes’s FCF in 1Q18 improved dramatically from -$422 million the previous year. Baker Hughes’s CFO turned around from a negative figure in 1Q17 to $76 million in 1Q18. Despite a moderate year-over-year revenue increase, a decrease in net working capital, mainly due to higher collections, led to higher CFO generation in 1Q18. Baker Hughes’s higher CFO more than offset the increase in the capex, which led to the higher FCF in 1Q18.

Baker Hughes accounts for 0.59% of the iShares Global Energy ETF (IXC). IXC tracks an index composed of global equities in the energy sector. The oil and gas equipment and services sector accounts for 7.4% of IXC. IXC increased 14% in the past year—compared to a 14% fall in Baker Hughes’s stock price during the same period.

National Oilwell Varco’s FCF decreased in 1Q18

National Oilwell Varco recorded a FCF of -$168 million in 1Q18—a steep deterioration compared to the FCF of $69 million in 1Q17. Despite the higher revenue, National Oilwell Varco’s CFO turned negative in 1Q18—compared to a positive CFO in 1Q17. In 1Q18, National Oilwell Varco’s CFO was lower mainly due to increases in accounts receivable and inventories and a decrease in accrued liabilities. Although National Oilwell Varco’s capex decreased in 1Q18, it couldn’t offset the fall in the CFO, which led to the negative FCF in 1Q18.

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