The world's largest oilfield services provider
) has recorded second quarter 2012 earnings of $1.05 per share
(excluding special items), beating the Zacks Consensus Estimate of
The quarter's results improved 22.1% from 86 cents earned per
share in the year-earlier quarter and 9.4% from 96 cents earned in
the prior quarter. The increase was aided by the strength in global
exploration and deepwater activity as well as efficiency in
Income from continuing operations, excluding charges, was $1,403
million, up almost 20% year over year and 8.3% sequentially.
Total revenue of $10,448.0 million beats marginally the Zacks
Consensus Estimate of $10,447 million, and grew 16.2% from the
year-earlier level of $8,990.0 million. Sequentially, total revenue
grew approximately 5% in the reported quarter.
Segmental revenues were up approximately 16% year over year and 5%
sequentially at $10,448.0 million in the second quarter. Pre-tax
operating income of $2,099 million soared 20% year over year and 8%
All geographical areas registered sequential growth except North
America, which was hurt by the Canadian spring break-up and the
weakness in the U.S. land hydraulic fracturing market. However, the
weakness in this area was partially mitigated by solid performance
by other land operations and the U.S. Gulf of Mexico (GoM).
The sequential revenue growth was aided by the international
markets, which exhibited a strong growth following a seasonal
rebound of activity in Russia, the North Sea and China. Again,
price improvements in seismic, wireline and drilling related
product lines, both on land and offshore contributed to the
Recently, Schlumberger announced the divestiture of its Wilson
distribution business and equity ownership interest in CE Franklin
Ltd. Following these transactions, the company's Distribution
segment has been reclassified to discontinued operations. Hence,
Schlumberger has restated all prior periods accordingly.
Capital Expenditure, Balance Sheet & Share
As of June 30, 2012, the company had approximately $3,493
million in cash and short-term investments and $7,953 million in
long-term debt, representing a debt-to-capitalization ratio of
19.4% (versus 20.6% as reported in the previous quarter).
During the quarter, Schlumberger purchased 7.5 million shares
for approximately $499 million, at an average price of $66.30.
Schlumberger remains upbeat about 2012, owing to 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
The oilfield services behemoth believes that balanced land
portfolio and strong leverage to the deepwater segment will help it
in performing 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.
We maintain our long-term Neutral recommendation on the
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
2012, a rise in pricing of seismic and high seismic vessel
utilization and a continuous shift toward performance-based
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 main competitor,
) − the second-largest member of the oilfield services contingent −
is scheduled to report its second quarter 2012 results on July 23,
2012, before the opening bell.
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.
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