Baker Hughes Company (BKR) Cash Flow Statement

The wide quarterly swings in OCF/NI, from 0.54 to 1.97, suggest that net income is not a reliable proxy for cash generation in any given quarter. The positive working capital contribution of $540M in 2026Q2 versus a -$390M drag in the prior quarter highlights the lumpy nature of collections and payables in large project-based contracts. Investors should focus on the 10-quarter average OCF/NI of approximately 1.3, which indicates that cumulative operating cash flow has exceeded net income, but the quarterly volatility warrants caution in interpreting single-period earnings quality.

The FCF trajectory shows a sharp recovery in 2026Q2, driven by a $1.3B operating cash flow print, but this follows a weak Q1 where FCF was only $164M. Over the last ten quarters, FCF margins have ranged from 0.8% to 17.4%, indicating high variability tied to project milestones and working capital swings. The average FCF margin of 8.3% is below the peer FCF margin of 12.8% for SLB, suggesting BKR's capital intensity and contract terms may be less favorable, though the recent quarter's performance indicates potential for improvement if working capital can be managed more consistently.

CapEx/Rev has remained in a tight band of 4.1% to 5.2% over the last ten quarters, with no significant step-up in investment. This suggests that BKR is not aggressively reinvesting in new capacity, which may limit future growth potential but also supports free cash flow generation. The consistency of CapEx relative to revenue implies that the company is focusing on maintenance and efficiency rather than large-scale expansion, which aligns with the prior income statement analysis showing stagnant revenue growth. Investors should monitor whether this level of investment is sufficient to support the company's pivot toward higher-margin industrial technology and LNG equipment.

The working capital line is the most volatile component of operating cash flow, with swings of over $1.5B between quarters. This is consistent with the percentage-of-completion accounting and large project-based revenue, where milestone billing and supplier payments create significant timing mismatches. The positive working capital contribution in 2026Q2 and 2025Q4 suggests efficient collections, but the negative contributions in other quarters indicate that BKR sometimes funds customer projects before receiving cash. This pattern underscores the importance of monitoring backlog conversion and contract terms, as working capital swings can obscure the underlying cash generation ability.

Over the last ten quarters, BKR has paid a steady dividend of approximately $228M per quarter, totaling over $2.2B, while buybacks have been inconsistent, with notable activity in 2025Q1 and Q2 but none in 2026. This suggests management is prioritizing a reliable dividend payout over opportunistic share repurchases, possibly to signal confidence in cash flow stability. The lack of buybacks in 2026, despite a strong Q2 cash flow, may indicate that management is conserving cash for potential acquisitions or debt reduction, though the balance sheet appears healthy with a low debt-to-equity ratio. Investors should monitor whether this capital allocation strategy changes as the company pursues its 'New Energy' pivot.

The cumulative OCF/NI ratio of approximately 1.3 indicates that BKR has converted more than $1 of operating cash flow for every $1 of net income over the past two and a half years. This is a positive signal for earnings quality, as it suggests that non-cash charges like D&A and working capital management have not artificially inflated reported profits. However, the divergence is not uniform, with some quarters showing OCF/NI below 1.0, which highlights the lumpy nature of the business. The cumulative excess of OCF over net income may also reflect the impact of restructuring charges and other non-cash items that reduce net income but do not affect cash flow, supporting the view that BKR's underlying cash generation is solid.