Schlumberger Q2 Earnings Miss Estimates, Revenues Beat - Analyst Blog

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Schlumberger Ltd. ( SLB ), the world's largest oilfield services provider, posted adjusted second-quarter 2014 earnings of $1.21 per share (excluding special items), lagging the Zacks Consensus Estimate of $1.35. The reported figure also fell from $1.57 per share earned in the year-earlier quarter.

Income from continuing operations, excluding charges, was $1.80 billion, down approximately 19% year over year.

Total revenue of $12.1 billion was up 7.8% from the year-earlier level of $11.2 billion and beat the Zacks Consensus Estimate of $11.9 billion. The results were attributable to the company's increased activity both offshore and in key land markets. The growth was strongest internationally, as activities gained momentum in a number of regions. This was partially offset by Canadian spring break-up.

Second-Quarter Highlights

Oilfield Services : Segmental revenues were up approximately 8% year over year at $12.1 billion. Pre-tax operating income of more than $2.6 billion increased 15% year over year.

All groups - Reservoir Characterization, Drilling Group and Production Group - registered a sequential rise. All areas and all groups recorded growth, aided by the successful implementation and penetration of the company's new technology. Geographical results were driven by Europe/CIS/Africa, since Russia recovered noticeably from the effects of a harsh winter and Norway gained from an active start to the summer seismic season.

Reservoir Characterization : This group posted revenues of $3.1 billion in, up 1% year over year. Pre-tax operating income was $918 million, which increased 0.7% from the prior-year quarter.

Drilling Group : Revenues recorded by this group were $4.7 billion, which improved 9.8% from the year-ago quarter. Pre-tax operating income was $981 million, up 22.6% year over year.

Production Group : Revenues recorded by this group were $4.3 billion, which climbed 10.6% from the year-ago quarter. Pre-tax operating income was $725 million, up 16% year over year.

Financials

As of Jun 30, 2014, the company had approximately $6.7 billion in cash and short-term investments and $11.7 billion of long-term debt. In the reported quarter, Schlumberger repurchased 11.53 million shares of its common stock at an average price of $101.85 for a total purchase price of $1.17 billion.

Our Take

Looking forward, Schlumberger's overall outlook for 2014 remains largely unchanged from its earlier projections. The bullishness of the company stems from higher market share and an improving cost structure. Notably, the company targeted state-owned and independent energy companies that are spending significantly to develop shale and other resources around the world, rather than multinational energy companies, most of which are cutting on spending.

Schlumberger is optimistic about rising rig count activity, which will likely lead to increased international spending on exploration, higher production and stepped-up activity in the U.S. Gulf of Mexico. The company also expects steady growth in the key regions of Sub-Sahara Africa, Russia, the Middle East, China and Australia.

This oilfield services behemoth believes that strong leverage to the deepwater segment will help it to perform well over the coming years. While the company derives most of its revenues outside North America, it has to cope with industry-wide weakness in U.S. hydraulic fracturing services and softness in the land coiled-tubing business.

Schlumberger generates about two-thirds of its revenues internationally, marking the highest ratio among the biggest oilfield service providers, which include Halliburton Company ( HAL ) and Baker Hughes Inc. Schlumberger's strength also lies in effective implementation, strong contracts and new technologies.

At present, Schlumberger has a Zacks Rank #3 (Hold) and is expected to perform in line with the broader market over the next few months. Meanwhile, one could consider ConocoPhillips ( COP ) and BPZ Resources Inc ( BPZ ), which sport a Zacks Rank #1 (Strong Buy).


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: SLB , HAL , COP , BPZ

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