Baker Hughes' Tariff Headwinds: Navigating Trade Uncertainties in 2025

The global energy and industrial sector is bracing for turbulence as Baker Hughes (BKR) warns that tariffs and trade policy shifts could undermine its full-year core profit outlook. In its first-quarter 2025 earnings report, the company highlighted macroeconomic and geopolitical risks, signaling that trade-related uncertainties are now central to its financial planning.

The Tariff Impact: A Forward-Looking Caution

While Baker Hughes’ Q1 2025 results showed resilience in certain areas—such as a 10% year-over-year rise in adjusted EBITDA to $1.037 billion and record remaining performance obligations (RPO) of $30.4 billion in its Industrial & Energy Technology (IET) segment—the company’s leadership explicitly flagged trade policy risks as a key concern. CEO Lorenzo Simonelli noted that broader macroeconomic and trade uncertainties were “tempering” the company’s outlook, despite strong execution in key markets.

The risks are detailed in the “Forward-Looking Statements” section of the earnings release, where Baker Hughes cites tariffs and potential policy changes as material risks. These could disrupt supply chains, increase input costs, or reduce demand for its products, particularly in global markets like LNG infrastructure and data center power solutions.

Financial Performance: Resilience Amid Sequential Declines

The Q1 results reveal a mixed picture:
- Revenue: $6.4 billion, flat year-over-year but down 13% sequentially due to lower volumes in both segments.
- Net Income: $402 million, a 12% year-over-year decline but a 66% sequential drop, reflecting one-time costs and macro pressures.
- Adjusted EBITDA: Up 10% YoY to $1.037 billion but down 21% sequentially, driven by cost inflation and lower oilfield services demand.

The sequential declines underscore vulnerabilities in the current quarter, but year-over-year growth in segments like Gas Technology Equipment (+20%) and Climate Technology Solutions (+114%) suggests underlying strength. However, the company’s caution about tariffs and trade policies highlights external pressures that could amplify these challenges in the coming quarters.

Strategic Mitigation: Cost Controls and Supply Chain Overhaul

To counter tariff-related risks, Baker Hughes is pursuing three key strategies:
1. Supply Chain Optimization: Expanding domestic production of critical components and diversifying suppliers to reduce reliance on imported materials.
2. Material Substitution: Exploring alternatives to tariff-affected inputs like steel and aluminum.
3. Strategic Partnerships: Strengthening ties with local suppliers and customers to secure stable cost structures, as seen in its recent LNG project wins in Louisiana and the Middle East.

These efforts aim to reduce tariff-driven costs by an estimated 30% by late 2025, though the Q1 results already reflect a $45 million hit from existing tariffs.

Investment Considerations: Risks vs. Resilience

Investors must weigh two critical factors:
- Valuation: Baker Hughes trades at a P/E ratio of 14.5x, below its five-year average of 18.2x, suggesting undervaluation if tariff risks subside.
- RPO Pipeline: Its record $30.4 billion IET RPO, driven by long-term LNG and power contracts, provides a buffer against near-term volatility.

However, the company’s exposure to global trade dynamics remains a wildcard. A could reveal whether the risks are escalating or stabilizing.

Conclusion: A Balancing Act for 2025

Baker Hughes’ Q1 results demonstrate its ability to navigate sector-specific challenges, but the tariff warning underscores the fragility of its full-year outlook. With $30.4 billion in contracted projects and margin-improvement initiatives, the company is positioned to weather moderate tariff pressures. However, investors should monitor two key metrics:
1. Adjusted EBITDA Growth: A sequential rebound in Q2 would signal resilience against cost inflation and trade risks.
2. Global Trade Policy Developments: Escalating tariffs or trade disputes could derail progress, particularly in its international markets.

For now, Baker Hughes’ stock offers a mix of value and risk. While the tariff overhang creates uncertainty, its strong RPO pipeline and strategic pivots toward high-margin segments like LNG and data center power solutions make it a compelling long-term play—if trade tensions can be managed.

In the near term, Baker Hughes’ shares may remain volatile as markets digest tariff-related risks. Yet, with a P/E discount and a robust order backlog, the company could emerge stronger if it successfully mitigates these external headwinds.