Conservative · Stocks to Consider and Updates

Shlumberger Reports Third Quarter Results; Outlook Mixed

Schlumberger (NYSE: SLB – $59.23), the world’s largest oilfield services provider, reported third quarter revenue of $8.5 billion, which grew 9% from a year ago, but a bit shy of consensus. International revenue rose 1.3% to $5.22 billion, while revenue from North America jumped about 23% to $3.2 billion. The company also reported a slight profit beat but cautioned that North American growth would slow due to transportation bottlenecks and hurt results next quarter. Total profit for the quarter was $644 million, or $0.46 per share, up about 18% from last year and a penny better than analysts were forecasting. Although quarterly profits were higher, the company has been hit by slower-than-anticipated growth in the U.S. Permian Basin. Production has outpaced available pipeline takeaway capacity and driven prices lower, but Schlumberger expects the bottlenecks to be resolved in the next 12 to 18 months. The company’s international business revenues were strong from the previous quarter as broad-based activity continued to recover and outpaced that of North America for the first time since the second quarter of 2014.

      Soft demand and pricing will likely continue into the fourth quarter according to comments made during its earnings conference call and management expects revenue from international markets to be “flattish”. However, growth next year outside of the U.S. should be strong, especially in Latin America. Schlumberger also sees signs of higher drilling activity in some shallow-water offshore plays. Current year earnings should be about $1.77 per share compared to $1.46 last year and $2.42 is the consensus target for 2019. The shares have materially lagged the market since the energy pricing collapse that began in 2014. However, good-quality Schlumberger stock, yielding 3.4%, offers strong total return recovery potential over the 3 to 5-year horizon. That is assuming the improved backdrop in all its markets comes together in conjunction with a stabilization in oil prices.

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