The world's largest oilfield services provider
Schlumberger Ltd.
(
SLB
) reported third quarter 2012 earnings of $1.08 per share
(excluding special items), beating the Zacks Consensus Estimate
of $1.06.
The quarter's results improved 12.5% from 96 cents per share
earned in the year-earlier quarter and 2.9% from $1.05 earned in
the prior quarter. The increase was aided by the strength in
global exploration and deepwater activity as well as efficiency
in operations.
Income from continuing operations, excluding charges, was $1,424
million, up almost 10% year over year and 3% sequentially.
Total revenue of $10,608.0 million in the quarter was up 11.1%
from the year-earlier level of $9,546.0 million and approximately
2% sequentially. However, it missed the Zacks Consensus Estimate
of $10,683 million.
Segmental Highlights
Oilfield Services
: Segmental revenues were up approximately 11% year over year and
2% sequentially at $10,608.0 million in the third quarter.
Pre-tax operating income of $2,142 million jumped 11% year over
year and 2% sequentially.
All groups - Reservoir Characterization, Drilling Group and
Production Group - registered sequential growth based on
increased exploration, both on land and offshore as well as and
strong deepwater activities.
Further, robust sales Artificial Lift and Completions products
together with improved Schlumberger Production Management (SPM)
project activity aided the Production Group to record a
sequential growth, which was partly offset by lower Well Services
revenue in North America.
Reservoir Characterization
: This group posted revenue of $2,910 million in the third
quarter, up 17% year-on-year and 5% sequentially. Pre-tax
operating income was $838 million, which increased 38% from the
prior-year quarter and 7% sequentially.
Drilling Group
: Third quarter revenues recorded by this group was $4,048
million, which improved 13% annually and 1% sequentially. Pre-tax
operating income was $733 million, up 21% year-on-year but down
1% sequentially.
Production Group
: The revenue for the third quarter recorded by this group was
$3,675 million, which climbed 6% annually but dipped 2%
sequentially. Pre-tax operating income was $548 million, down 24%
year-on-year and 11% sequentially.
Capital Expenditure, Balance Sheet & Share
Repurchase
As of September 30, 2012, the company had approximately $4,760
million in cash and short-term investments and $9,397 million in
long-term debt, representing a debt-to-capitalization ratio of
21.5% (versus 19.4% as reported in the previous quarter).
During the quarter, Schlumberger purchased 2.2 million shares for
approximately $149 million, averaging $68.19 a share.
Company Outlook
Schlumberger remains upbeat about 2012, based on the positive
outlook for the international markets. The company expects an
increase of more than 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.
The oilfield services behemoth believes that balanced land
portfolio and strong leverage to the deepwater segment will help
it perform well over the coming years. While the company makes
most of its money outside North America, it suffers from the
industry-wide weakness in U.S. hydraulic fracturing services as
well as weakness in the land coiled-tubing business.
Our Take
We maintain 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. Importantly,
Schlumberger expects a boost in technological innovation
throughout the balance of 2012, a rise in pricing of seismic and
high seismic vessel utilization and a continuous shift toward
performance-based contracts.
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
profitability.
The company's main competitor,
Halliburton Co.
(
HAL
) − the second-largest member of the oilfield services contingent
− has reported in-line third quarter 2012 results, as robust
results from its international business was offset by cost
inflation. Earnings per share from continuing operations
(excluding special items) came in at 67 cents, matching the Zacks
Consensus Estimate.
We see Schlumberger performing in line with the broader market
and prefer to remain on the sidelines.
Schlumberger shares currently retain a Zacks #3 Rank, which
translates into a short-term Hold rating.
HALLIBURTON CO (HAL): Free Stock Analysis
Report
SCHLUMBERGER LT (SLB): Free Stock Analysis
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