* Q3 adjusted EPS 67 cents per share, in line with views
* Q4 looks even tougher in N. America as budgets run dry
* Shares down 1.5 percent
* Schlumberger, Baker Hughes report Friday
By Braden Reddall
Oct 17 (Reuters) - Halliburton Co said its third-quarter profit fell due to inflated raw material costs and a slowdown in U.S. drilling, which showed no signs of picking up as many clients' budgets for the year were already spent.
Halliburton, the world's No. 2 oilfield services company, said North American margins ended up even lower than it warned of last month - at just over 15 percent. It added that weaker activity and pricing pressure will likely erode them again in the fourth quarter. The margins stood at nearly 27 percent in the first quarter of this year.
Shares of Halliburton fell 1.5 percent to $34.05 as its underlying quarterly profit came in lower than expected on Wednesday.
Shares of rivals Schlumberger Ltd and Baker Hughes Inc were slightly higher on the New York Stock Exchange. They both report results on Friday.
Oilfield services companies have had far less pricing power as depressed natural gas prices reduced the number of U.S. rigs targeting gas to a 13-year low.
While the U.S. oil-directed rig count rose 3 percent from the second quarter, that did not offset a 18 percent drop in gas rigs, Halliburton said. North American revenue fell 5 percent from the second quarter, hit by weak hydraulic fracturing demand and partly due to disruptions caused by Hurricane Isaac.
"We are also seeing activity reductions by some of our customers as they continue to moderate activity to operate within their stated 2012 budgets," Chief Executive David Lesar said, before predicting a "pretty bumpy" few quarters ahead.
International revenue rose 2 percent from the second quarter despite a 2 percent decline in the global rig count, lifted by solid growth in Latin America and the Middle East.
Lesar remained confident in the long-term fundamentals of the overall business, saying the strategy was unchanged, with a focus on strengthening international margins and growing market share in deepwater, global unconventional drilling and underserved international markets.
"Somewhat puzzling that the strategy is unchanged, given that the growth profile for the industry is considerably less robust than was the case coming into this year," Simmons & Co analyst Bill Herbert said in a note to clients.
Net income fell to $604 million, or 65 cents per share, in the third quarter from $685 million, or 74 cents per share, a year earlier. Revenue rose 9 percent to $7.1 billion.
Income from continuing operations, on an adjusted basis, was 67 cents per share, in line with expectations, according to Thomson Reuters I/B/E/S. But analysts said about 4 cents per share were due to lower taxes and corporate expenses.
Halliburton's second-quarter decision to stockpile guar, a key ingredient in fracking fluid, has backfired, now that prices are falling.
That shaved about 6 percentage points off North American margins, but the pressure on profits will fade away early next year, executives said.
The company also plans to start idling pressure pumping capacity until the current glut in North America is cleared. That will eliminate the need to keep fracking crews busy with lower-priced work.
Capital expenditures for 2013 are expected to be lower than the anticipated $3.4 billion to $3.5 billion this year, Chief Financial Officer Mark McCollum said, as the company spends less on building new pumping equipment.