The world's largest oilfield services provider
) has reported first quarter 2012 earnings of 98 cents per share
(excluding special items), beating the Zacks Consensus Estimate by
a penny. The quarter's results also showed a steady improvement
from the year-earlier profit of 71 cents per share.
Income from continuing operations, excluding charges, stood at
$1.31 billion, up 35% year over year but declined 12% sequentially.
The year-over-year increase was aided by strong performance in
global exploration and deepwater activity as well as efficiency in
operations. However, the sequential decline was mainly due to usual
seasonal slowdown in product, software and multiclient sales.
Total revenue of $10.6 billion was at par with the Zacks
Consensus Estimate of $10.6 billion, and grew an impressive 22%
from the year-earlier level of $8.7 billion.
Segmental revenues were up 22% year over year but decreased 4%
sequentially to $9.9 billion in the first quarter. Pre-tax
operating income of $1.9 billion, soared 33% year over year, but
fell 10% sequentially.
The year-over-year revenue growth can be attributed to North
America, in particular, which exhibited a strong growth in
high-technology services in the deepwater areas of the Gulf of
Mexico, which recorded solid operational performance. Price
improvements in wireline and drilling related product lines, both
on land and offshore also contributed to the growth.
In the international arena, deepwater and exploration activity
in several regions along with strong land activity in the Middle
East and North Africa gained traction.
Revenue for this segment increased 4% sequentially and 19% year
over year to $713 million in the first quarter. Pre-tax operating
income jumped 32% sequentially and 56% year over year to $35
Capital Expenditure, Balance Sheet & Share
As of March 31, 2012, the company had approximately $4.1 billion
in cash and short-term investments and $8.4 billion in long-term
debt, representing a debt-to-capitalization ratio of 20.6% (versus
21.4% as reported in the previous quarter).
During the quarter, Schlumberger purchased 4.4 million shares
for approximately $324 million, at an average price of $74.01.
Schlumberger remains upbeat about 2012 owing to the positive
outlook for the international markets. The company expects an
increase of 10% in its rig count in 2012 with robust exploration
and deepwater activity. Schlumberger's strength also lies in
effective implementation, strong contracts and new technologies.
However, Schlumberger remains skeptical about the North American
dry gas drilling and pressure pumping pricing scenario.
The oilfield services behemoth believes that balanced land
portfolio and strong leverage to the deepwater segment will help it
in performing well, in the coming years.
Schlumberger shares currently retain a Zacks #3 Rank, which
translates into a short-term Hold rating. We are also maintaining
our long-term Neutral recommendation on the stock.
We like Schlumberger's leading position in the global oilfield
services market, along with its technologically complex products
and service offerings and robust financial profile. Moreover, we
believe the company will benefit in the next several quarters from
the continued shift in drilling activity to liquids from gas and
the restructuring of its U.S. land operations.
Importantly, Schlumberger expects an increase in technology
introductions throughout 2012, a rise in pricing of seismic and
high seismic vessel utilization and a continuous shift toward
performance-based contracts. The new alliance with Petrofac also
bodes well for future growth in margin and market share.
However, Schlumberger's financial and operational performances
face a number of headwinds, including changes in exploration and
production spending patterns, commodity price fluctuations,
geopolitical risks, regional spending trends, competition, new
technology and changes in economic conditions. Additionally,
foreign currency fluctuation is also a threat to the company's
The company's competitor,
), the second-largest member of the oilfield services contingent,
reported better-than-anticipated first quarter 2012 results aided
by the strength and sustainability of the all-important North
American onshore activity levels (to which the company is heavily
leveraged through its market-share-leading pressure-pumping
business). Halliburton's earnings per share and revenues edged past
the Zacks Consensus Estimates.
As such, we see Schlumberger performing in line with the broader
market and prefer to remain on the sidelines.
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