Baker Hughes Navigates Tariff Headwinds with Resilient Profit Growth

Baker Hughes (BKR) delivered a mixed first-quarter 2025 performance, beating earnings estimates while grappling with revenue stagnation and escalating trade-related costs. Despite these challenges, the company’s focus on margin improvements and strategic pivots to high-growth segments offers a glimpse of resilience in an uncertain market.

Financial Highlights: A Fragile Balance

The company’s adjusted diluted EPS of $0.51 outperformed expectations, marking a 2.5% year-over-year increase from $0.43 in Q1 2024. This growth, however, came amid flat revenue of $6.4 billion, slightly below both the prior-year period and consensus forecasts. Net income dipped 12% to $402 million, reflecting one-time costs and the lingering impact of tariffs.

The adjusted EBITDA story, though, is more encouraging. Rising 10% year-over-year to $1.037 billion, this metric underscores the effectiveness of Baker Hughes’ cost-cutting initiatives. However, sequential declines (down 21% from Q4 2024’s $1.31 billion) signal near-term execution challenges, particularly as trade headwinds intensify.

Segment Performance: Strength in Innovation, Struggles in Tradition

The Industrial & Energy Technology (IET) segment emerged as a standout, posting 9% year-over-year order growth to $3.2 billion. Breakouts in Gas Technology Equipment (+20%) and Climate Technology Solutions (+114%) reflect strategic bets on decarbonization and energy diversification. These gains are critical as Baker Hughes shifts its focus from cyclical oilfield services to higher-margin, long-term growth markets.

In contrast, the Oilfield Services and Equipment (OFSE) segment faced volume declines, though cost discipline kept adjusted EBITDA margins stable. This dichotomy highlights the company’s broader transition: even as traditional markets stagnate, its future lies in technology-driven solutions.

Tariffs and Trade: The Elephant in the Boardroom

Baker Hughes’ Q1 results were shadowed by $45 million in tariff-related costs, a direct hit to profitability. The company now estimates that 30% of these costs can be mitigated by late 2025 through supply chain reconfigurations and material substitutions. However, the remaining exposure underscores the vulnerability of a global industrial firm to geopolitical shifts.

Investors should monitor developments in LNG and power infrastructure projects, which account for much of Baker Hughes’ record $30.4 billion in remaining performance obligations (RPO). This RPO backlog, concentrated in the IET segment, provides a cushion against near-term volatility but hinges on stable trade policies.

Valuation and Outlook: A Hold with Long-Term Upside

At a P/E ratio of 14.5x—below its five-year average of 18.2x—Baker Hughes appears undervalued if trade risks abate. Analysts project $2.53 EPS for 2025, suggesting a potential rebound if Q2 delivers a sequential EBITDA recovery.

The Zacks #3 (Hold) rating reflects cautious optimism: while the company’s RPO and margin trajectory justify optimism, macroeconomic uncertainty and trade tensions could prolong volatility.

Conclusion: A Company at a Crossroads

Baker Hughes’ Q1 results are a microcosm of its broader journey: steady progress in innovation contrasts with the drag of legacy challenges. The company’s $1.037 billion adjusted EBITDA and $30.4 billion RPO underscore its long-term potential, particularly in gas and climate technologies. However, investors must weigh these positives against near-term risks like tariffs and sluggish oilfield demand.

If Baker Hughes can reduce tariff impacts as promised and achieve a Q2 EBITDA rebound, its valuation could realign with its growth narrative. For now, the stock offers a balanced proposition: attractive at current multiples but requiring patience amid macroeconomic crosscurrents.

In a sector where resilience is hard-won, Baker Hughes’ strategic discipline positions it to thrive—if geopolitical storms subside.