Schlumberger (SLB) Earnings Beat, Revenues Miss In Q3

The world’s largest oilfield services provider, Schlumberger Ltd. (NYSE:SLB) reported third-quarter 2016 earnings of 25 cents per share (excluding Cameron merger and integration charges), which came in above the Zacks Consensus Estimate of 22 cents. Higher activities in the land market of the U.S along with fracturing work recovery in North America led to the earnings beat. This clearly indicates that oil producers are putting more rigs in the continent again.

However, the bottom line decreased substantially from 78 cents per share earned in the year-earlier quarter. Continual decline in deepwater operations led to the year-over-year deterioration.

Schlumberger is the second U.S. energy firm after Halliburton Company (NYSE:HAL) to post better-than-expected earnings this quarter. The remaining two of the so-called Big Four oilfield service and equipment providers – Baker Hughes Inc. (NYSE:BHI) and Weatherford International plc (NYSE:WFT) – will report third-quarter results next week.

Schlumberger reported total revenue of $7,019 million. The top line not only deteriorated from the year-earlier level of $8,472 million but also missed the Zacks Consensus Estimate of $7,130 million.

Segmental Performance

Each of the groups – Reservoir Characterization, Drilling Group and Production Group – registered year-over-year fall in revenues.

Drilling Group revenues decreased primarily due to the persistent decline in deepwater works that impacted the regions including Sub-Saharan Africa, Brazil, and the Asia Pacific. However, the negatives were partially offset by the improvement in the land market activities in the U.S.

Results of the Production Group were impacted negatively by reduced fracturing and completions works in Latin America, North Sea, and the Middle East. Recovery of fracturing works in the North American land market partially offset the negatives.

Although results from Reservoir Characterization segment declined year over year, the negatives were partially offset by additional works in the seismic operations in Saudi Arabia, significant progress on early production facilities in Kuwait, enhanced Wireline and Testing operations in Kazakhstan and Russia.

Reservoir Characterization: This group posted revenues of $1,689 million, down from $2,380 million in the prior-year quarter. Pre-tax operating income was $322 million, down 48% year over year.

Drilling Group: This group’s revenues of $2,021 million plunged 37% year over year. Pre-tax operating income was $218 million, down 63% year over year.

Production Group: Revenues recorded by this group declined 29% from the year-earlier quarter to $2,083 million. Pre-tax operating income was $98 million, down 70% year over year.

Financials

As of Sep 30, 2016, company had approximately $10,756 million in cash and short-term investments and $17,538 million in long-term debt, representing a debt-to-capitalization ratio of 33.3%. In the reported quarter, the company repurchased 2 million shares of its common stock at an average price of $77.02 for a total purchase price of $156 million. Schlumberger currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Guidance

Schlumberger expects the demand for oil to increase in 2017. According to the company the increase in demand as well as the OPEC’s intention to cut crude production would lead to oil price recovery in the long run.

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