Halliburton Guidance Pressures Oil Services ETFs (OIH, IEZ)
It might come as a relief that the trading halt in shares of Halliburton (NYSE: HAL) this afternoon was not related to negative legal news pertaining to the Macondo well, but the Texas-based company didn't do investors any favors by giving a grim update on second-quarter margins.
Halliburton, the world's second-largest provider of oilfield services, said in a statement it believes that its North America margins will be impacted 300 basis points more than its previous guidance of 200 to 250 basis points, for a total impact of 500-550 basis points lower than first quarter levels.
"The price of guar gum has inflated more rapidly than previously expected due to concerns over the potential for shortages for the commodity later in 2012," the company said in the statement. "As such, the costs have impacted the company's second quarter North America margins more than anticipated."
Already under significant pressure due to plunging oil prices, Halliburton shares have lost more than 13% in the past three months. Shares of Halliburton and its main competitors have proven to be drags on oil services ETFs and when the company disclosed the margin guidance today, these already vulnerable funds responded negatively.
While the iShares Dow Jones U.S. Oil Equipment & Services Index Fund (NYSE: IEZ) is still shown higher for the day, the ETF touched a new intraday low immediately after the Halliburton news crossed the wires. The Market Vectors Oil Services ETF (NYSE: OIH), which is also still up on the day, immediately lost ground following the Halliburton news as well.
Not surprisingly, Halliburton's glum headlines is weighing on rivals such as Schlumberger (NYSE: SLB), the world's largest oilfield services provider and Baker Hughes (NYSE: BHI). Halliburton is the third-largest holding in both OIH and IEZ, accounting for more than 9% of each ETF's weight. Combined, Schlumberger, Halliburton and Baker Hughes account for over 36% of OIH's weight and about 36.5% of IEZ's weight.
Halliburton is scheduled to report its second-quarter results on Monday July 23rd.
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