Houston’s Schlumberger NV (NYSE: SLB – $32.87) was able to beat Wall Street estimates in the first quarter under new CEO Olivier Le Peuch, as higher international drilling activity boosted demand for its equipment and services and helped counter weakness in North America. Total revenue was largely unchanged at $8.54 billion but beat expectations of $8.50 billion. Revenue from its international business rose 8% while revenue from North America fell 11%. Sequentially, total revenue was up 2% from the second quarter. The international business has been a bright spot for the world’s largest oilfield services provider since last year as investor pressure to improve returns has forced North American energy producers to rein in drilling new wells in a volatile price environment.
Le Peuch, who took charge in July, has outlined plans to accelerate digital investments, restructure his predecessor’s major initiatives and resize the company’s North American onshore operations. As part of the strategy, the company recorded a goodwill impairment charge of $12.7 billion in the third quarter, largely related to its purchase of Smith International Inc and Cameron International Corp. The charge also included $1.58 billion linked to the company’s pressure pumping business in North America. Excluding the impairment charges and other non-recurring items, SLB earned $0.43 per share beating estimates of $0.40 and compared to an adjusted $0.46 per share last year.
By necessity, the company is increasing internal efficiency, which has involved streamlining operations to lower expenses, lifting the digital content of products and exiting capital-intensive service lines. The goal is to make it through in good shape during this extended business slump, while maintaining financial strength and preserving the $2.00 annual dividend. An industry turnaround that would allow these shares to realize their strong recovery potential is proving slow to develop. The yield on Schlumberger’s shares are about 6.3%, which should mitigate downside risk as we continue to wait this one out.