Technology

Schlumberger (SLB) Down 15.6% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Schlumberger (SLB). Shares have lost about 15.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Schlumberger due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Schlumberger Q2 Earnings In Line, Revenues Beat Estimates

Schlumberger second-quarter 2019 earnings of 35 cents per share (excluding charges and credits) were in line with the Zacks Consensus Estimate. The bottom line, however, declined from 43 cents a year ago.

The oilfield service giant recorded total revenues of $8,269 million, almost the same as the year-ago quarter figure. The top line beat the Zacks Consensus Estimate of $8,115 million.

Contributions from drilling operations in the international markets aided the quarterly results. Higher wireline and testing services in Russia and Central Asia as well as the United Kingdom and Continental Europe were also the positive factors. These were partially offset by soft prices of hydraulic fracturing.

Segmental Performance

Reservoir Characterization and Drilling segments saw a year-over-year increase in revenues while the Production and Cameron units reported a decline.

Increased Wireline and Testing activities in Russia & Central Asia, United Kingdom & Continental Europe and Saudi Arabia & Bahrain, which were backed by rising exploration operations in offshore plays, aided the Reservoir Characterization segment.

Significant contributions from profitable international business boosted the company’s Drilling unit. This was partially negated by a drop in activities in North American shale plays.

Soft prices for hydraulic fracturing hurt the Production segment. The results were partly made up for by higher activities associated to Well Services in the international market.

Revenues at the Reservoir Characterization unit totaled $1,649 million, marginally higher year over year. Pre-tax operating income, however, declined 7% to $326 million from $350 million in second-quarter 2018.

Revenues at the Drilling unit rose 8% year over year to $2,421 million. Pre-tax operating income was $300 million, up 4% year over year.

Revenues at the Production segment declined 5% from the year-earlier quarter to $3,077 million. Moreover, pre-tax operating income fell 26% year over year to $235 million.

Revenues at the Cameron segment amounted to $1,237 million, down 4% year over year. Pre-tax operating income dropped 6% from the prior-year quarter to $156 million.

Financials

As of Jun 30, 2019, the company had approximately $2,348 million in cash and short-term investments plus $16,978 million in long-term debt. This represents a debt-to-capitalization ratio of 32%. Through the June quarter, 2.5 million stocks were repurchased by the oilfield services player.

Outlook

With the increase in count for drilling rigs in international resources, Schlumberger reaffirmed its projection at 7 to 8% higher international spending by upstream energy firms. However, explorers are facing constant investor pressure for higher returns instead of production growth. The headwinds are likely to lower investments by explorers and producers in the land market of North America by 10% through 2019, reaffirmed the world’s largest oilfield service firm.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

Currently, Schlumberger has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Schlumberger has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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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 Nasdaq, Inc.