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Schlumberger Q3 Earnings Beat Estimates, Misses Revenue

The world’s largest oilfield services provider, Schlumberger Ltd. (SLB) reported adjusted third-quarter 2014 earnings of $1.49 per share (excluding special items), beating the Zacks Consensus Estimate of $1.46. Also, the quarter’s results increased from $1.29 per share earned in the year-earlier quarter.

Income from continuing operations, excluding charges, was $1.90 billion, up approximately 14% year over year.


Schlumberger Limited - Earnings Surprise | FindTheBest

Total revenue of $12.6 billion was up 8.9% from the year-earlier level of $11.6 billion and narrowly missed the Zacks Consensus Estimate of $12.7 billion. The top line was boosted by solid revenue growth in the company's North America operations with a strong seasonal rebound on land and significantly higher east coast offshore activity.

Third-Quarter Highlights

All groups – Reservoir Characterization, Drilling Group and Production Group – registered a sequential rise. All Areas and Groups recorded growth, supported by the strength of its execution and the penetration of its new technology. Geographical results were led by strong activity in North America and robust growth in International Areas, led by Latin America and supported by Europe/Africa/CIS in spite of international sanctions in Russia. At the same time, Middle East & Asia proved highly resilient in the face of significant headwinds in Northern Iraq.

Reservoir Characterization: This group posted revenues of $3.2 billion in, down 3% year over year. Pre-tax operating income was $954 million, which decreased 3.4% from the prior-year quarter.

Drilling Group: Revenues recorded by this group were $4.8 billion, which improved 10.6% from the year-ago quarter. Pre-tax operating income was $981 million, up 17.5% year over year.

Production Group: Revenues recorded by this group were $4.7 billion, which climbed 16.7% from the year-ago quarter. Pre-tax operating income was $725 million, up 21.2% year over year.

Financials

As of Sep 30, 2014, the company had approximately $6.8 billion in cash and short-term investments and $11.6 billion in long-term debt. In the reported quarter, Schlumberger repurchased 13.9 million shares of its common stock at an average price of $108.41 for a total purchase price of $1.5 billion.

Our Take

Looking forward, Schlumberger’s overall outlook for 2014 remains largely unchanged from its earlier projection. The bullishness of the company stems from higher market share and an improving cost structure. In a smart move, the company targeted state-owned and independent energy companies that are spending significantly to develop shale and other resources around the world, rather than multinational energy companies, most of which are cutting spending.

Schlumberger’s optimism on rising rig count activity will likely lead to increased international spending on exploration, higher production and stepped-up activity in the U.S. Gulf of Mexico. The company also expects steady growth in the key regions of Sub-Sahara Africa, Russia, the Middle East, China and Australia.

The oilfield services behemoth believes that strong leverage to the deepwater segment will help it to perform well over the coming years. While the company makes most of its money outside North America, it bears the brunt of industry-wide weakness in U.S. hydraulic fracturing services as well as softness in the land coiled-tubing business.

Schlumberger generates about two-thirds of its revenues internationally, marking the highest ratio among the biggest oilfield service providers, which include Halliburton Company (HAL) and Baker Hughes Inc. (BHI). Schlumberger’s strength also lies in effective implementation, strong contracts and new technologies.

Schlumberger currently holds a Zacks Rank #3 (Hold) and is expected to perform in line with the broader market over the next few months. However, there are better-ranked sector stocks, like Zacks Ranked #1 Enbridge Energy Management LLC (EEQ).

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