Baker Hughes Q2 FY26 earnings call BKR

Baker Hughes delivered a strong second quarter, with adjusted EBITDA reaching $1.23 billion, surpassing the high end of its guidance range. The company achieved a record adjusted EBITDA margin of 18.3%, an increase of 70 basis points year-over-year. IET orders doubled year-over-year to a record $7.1 billion, driving the book-to-bill ratio to 2.2x and RPO to an all-time high of $37.1 billion. Robust free cash flow generation amounted to $1.1 billion for the quarter.

The acquisition of Chart Industries was successfully completed, marking a significant milestone in Baker Hughes' portfolio strategy. Chart will operate as the company's third reporting segment, reflecting its strategic importance. Integration efforts are structured in two phases over 180 days, prioritizing customer continuity, employee retention, and early cost synergy actions. The company targets $325 million in annualized cost synergies by year 3, with $95 million expected in year 1, $230 million in year 2, and the full amount in year 3.

Driven by strong demand signals, particularly from data centers, Baker Hughes is expanding its gas turbine and generator capacity. This expansion is projected to support nearly $5 billion in annual Power Systems revenue opportunity by 2029 at full utilization, representing a 3 to 4x increase over 2025 revenue. The incremental capacity investment is disciplined, with paybacks below two years, and gas turbine capacity is expected to double from 2026 levels by the end of 2028, with the first NovaLT capacity coming online in H1 2027.

IET delivered another exceptional quarter with orders doubling year-over-year to $7.1 billion. This was driven by continued strength in Power Systems, which booked $2.6 billion (including 2.7 gigawatts of power generation, with $2.2 billion from data centers), and LNG equipment, which secured $1.8 billion across three large projects. Year-to-date IET orders reached $12 billion, leading the company to raise its full-year IET orders guidance to $17.5 billion to $19.5 billion, marking the second consecutive year of record orders.

The OFSC segment delivered a stronger-than-anticipated quarter despite ongoing disruptions in the Middle East. Revenue increased 7% sequentially to $3.45 billion, exceeding the high end of guidance. This outperformance was primarily due to robust activity outside the Middle East, where international OFS revenue grew double digits sequentially, and strong performance from the SSPS business, which saw revenue increase 10% sequentially and margins recover to the high teens. Middle East product revenue exceeded expectations, partially offsetting softer service activity in the region.

Global growth expectations have moderated, but energy security remains a strategic priority, supporting sustained investment across energy upstream and infrastructure. The rapid growth of AI is driving a step change in electricity demand, with hyperscaler capital spending expected to double from $370 billion in 2025 to $750 billion by 2028. Data center power demand is forecast to grow at an 18% annual rate through 2030, reaching 1,850 terawatt hours. Baker Hughes sees a $100 billion addressable market opportunity for Power Systems by 2030, with over half from behind-the-meter solutions.

The combined Baker Hughes and Chart portfolio offers significant commercial synergies. Key near-term opportunities include data centers, where combined power generation and thermal management capabilities provide broader infrastructure solutions for uptime and efficiency. Gas infrastructure also presents strong opportunities, offering complete solutions across the gas value chain for multiple molecules. Underappreciated long-term opportunities exist in space (leveraging cryogenic expertise), geothermal (integrated solutions), and mining (cross-selling services and digital monitoring).