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Schlumberger Reports Earnings Inline; Revenue Disappoints

  Energy services provider Schlumberger, Ltd. (NYSE: SLB – $74.28) said a ramp up in drilling activity in North America boosted pricing for its oilfield services, but the cost of reactivating equipment idled during the slump in crude oil prices harmed margins.  Net profit fell to $279 million in the first quarter from $501 million a year earlier. Excluding items, Schlumberger earned $0.25 per share vs. $0.40 a year ago and inline with analysts’ estimates. Revenue rose 5.7% to $6.89 billion in the quarter, but analysts on average had estimated revenue of $6.96 billion. Revenue from North America increased to $1.87 billion, up 27.8% from a year earlier. However, international revenue fell 7% to $4.92 billion from the preceding quarter, hurt by greater-than-expected seasonal decline in activity and sales, particularly in China, land projects in Russia and the North Sea. Schlumberger said production constraints imposed on its project in Ecuador also impacted the results.

       Oil stabilizing above $50 per barrel has encouraged oil producers to resume drilling after a more than two-year lull boosting demand for equipment and services provided by Schlumberger. The company believes drilling activity has reached a bottom in all regions and sees early signs of light offshore projects in the second half of the year. Management is guiding for a 15%-20% earnings per share increase in the second quarter to about $.30 with solid top line growth coming from North America. International markets, however, are continuing to provide more pricing headwinds.

       The high-quality shares are trading on expectations that SLB can once again provide the revenue and earnings potential it once enjoyed before the energy pricing collapse, which can only be confirmed over time. However, the company is the world’s largest oilfield services provider with operations in more than 85 countries offering products and services that cover the entire life cycle of oil and gas reservoirs from exploration to production. If crude oil prices continue to stabilize, Schlumberger should be a successful player in the years to come. The shares can be held for eventual recovery.

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