Baker Hughes lifts IET order outlook

Baker Hughes (BKR) used its third-quarter 2026 earnings call to increase guidance for its Industrial Energy Technology (IET) segment as backlog and order momentum continued to build. The company now expects full-year 2026 IET orders of $21.5 billion to $23.5 billion, implying a book-to-bill ratio above 1.6 times at the midpoint. Management also lifted its Horizon 2 IET order target for 2025 through 2027 to more than $50 billion, raising the target by $10 billion. The enlarged outlook is underpinned by strong demand in power systems, LNG and gas infrastructure, alongside growth in data centers and other industrial markets.

Through the first three quarters of 2026, Baker Hughes booked $17.9 billion of IET orders, already above its initial full-year guidance range. Third-quarter IET orders were $5.9 billion, representing a 1.7 times book-to-bill ratio and including $1 billion of LNG equipment awards and $2.2 billion of power systems orders driven by data center demand. Year to date, data center-related IET orders totaled $4.9 billion, while IET orders outside data centers reached approximately $13 billion, reflecting breadth across LNG, pipelines, upstream gas processing and FPSOs.

The surge in IET orders has pushed IET remaining performance obligation to a record $39.4 billion, up 6% sequentially and 23% year over year. Over the last four quarters, IET orders totaled almost $22 billion, supporting a growing base of longer lead-time projects in power systems, LNG and offshore production. At the end of the third quarter, 33% of the combined gas technology equipment and contractual services backlog was scheduled to convert in 2027, compared with 46% at the same point a year earlier for the following year, indicating a lengthening revenue conversion profile.

Management said the shift toward longer-duration projects enhances visibility into revenue growth beyond 2027, while also implying more modest growth in 2027 itself. For IET, higher-margin equipment backlog is expected to support sequential margin improvement in the fourth quarter, with anticipated Q4 revenue of $3.55 billion and EBITDA of $715 million. The company also indicated that IET book-to-bill is expected to remain above one times into 2027, consistent with sustained demand in its core markets.

For the third quarter of 2026, Baker Hughes reported revenue of about $8.0 billion, up 14% year over year, with acquisitions and divestitures contributing 9% on a net basis. Adjusted EBITDA was $1.42 billion, resulting in a 17.6% margin, broadly in line with the prior year. Adjusted diluted earnings per share were $0.70, up 2% year over year, while GAAP diluted EPS were $0.41. Free cash flow reached $769 million, up 10% from a year earlier, despite roughly $200 million of integration, restructuring and closing-related cash costs associated with the Chart acquisition.

Segment performance included IET revenue of $3.48 billion, up 3% year over year despite an approximately 3% net headwind from portfolio transactions, and IET EBITDA of $685 million, with margins expanding by 90 basis points to 19.7%. Oilfield Services & Equipment (OFSE) delivered third-quarter revenue of $3.66 billion and EBITDA of $659 million, with margins of 18.1% following sequential improvement. Chart generated revenue of $888 million and EBITDA of $156 million, equating to a 17.6% EBITDA margin supported by favorable project mix.

On the back of year-to-date results and fourth-quarter expectations, Baker Hughes increased the midpoint of its 2026 total company EBITDA outlook to $5.265 billion. It now anticipates 2026 free cash flow conversion of 45% to 50%, after generating $2.1 billion of free cash flow year to date. For the fourth quarter, the company guided to revenue of $8.25 billion and adjusted EBITDA of $1.46 billion, implying a slight uptick in margin at the midpoint to 17.7%.

The third quarter was the first reporting period to include Chart following the acquisition close on July 16. Baker Hughes has already executed actions representing approximately $70 million of annualized cost savings toward a targeted $325 million of annualized cost synergies by year three, with about three-quarters expected within the Chart segment. Management targets Chart EBITDA margins of 22% to 23% by the second half of 2028, with improvement driven by synergies, mix and operational and commercial initiatives, though the path is not expected to be linear.

At quarter end, Baker Hughes’ leverage ratio stood at 2.5 times, largely reflecting debt used to fund the Chart acquisition. The company plans to begin reducing debt in the fourth quarter, supported by free cash flow generation and proceeds from the planned Waygate divestiture. It is targeting net leverage of less than 1.5 times by the second half of 2028, while continuing to prioritize execution of its growing backlog and realization of Chart-related cost and commercial synergies.

Looking beyond 2026, Baker Hughes expects companywide organic revenue growth in 2027 in the low- to mid-single-digit range, with book-to-bill remaining above one and full-year margin expansion. Management highlighted ongoing growth opportunities in data centers, LNG, gas infrastructure and mature asset solutions, while noting that developments in the Middle East and aeroderivative supply chain execution remain key variables. For Chart, revenue in 2027 is expected to grow at a low- to mid-single-digit rate from an annualized second-half 2026 level, with progress on EBITDA margins toward the 22% to 23% target in 2028.