Schlumberger Posts Higher Earnings

Zacks

The world’s largest oilfield services provider Schlumberger Ltd. (SLB) reported adjusted second quarter 2013 earnings of $1.15 per share (excluding special items), beating the Zacks Consensus Estimate of $1.11 with ease.

Also, the quarter’s results increased from $1.05 per share earned in the year-earlier quarter. The results were boosted by the company’s strong international exposure, focus on execution and integration capabilities.

Income from continuing operations, excluding charges, was $1.54 billion, up approximately 14% year over year.

Total revenue of $11.18 billion was up 8.1% from the year-earlier level of $10.34 billion and ahead of the Zacks Consensus Estimate of $11.11 billion. Pre-tax operating income of more than $2.28 billion increased 12% year over year.

Second Quarter Highlights

In the reported quarter, of the total revenue of $11.18 billion, International Area revenues were $7.70 billion while North America Area revenues were $3.36 billion.

All the three business segments – Reservoir Characterization Group, Drilling Group and Production Group – registered growth in the reported quarter.

Reservoir Characterization Group: This segment posted revenues of $3.01 billion in the second quarter, up 11% year over year. Pre-tax operating income was $908 million, which increased 21% from the prior-year quarter.

Drilling Group: Second quarter revenues recorded by this group were $4.29 billion, which improved 8% annually. Pre-tax operating income was $804 million, up 11% year over year.

Production Group: The revenues for this group climbed 6% year over year to $3.93 billion. Pre-tax operating income was $625 million, up 4% year over year.

Financials

As of Jun 30, 2013, the company had approximately $5.93 billion in cash and short-term investments and $9.10 billion in long-term debt, representing a debt-to-capitalization ratio of 19.7%. In the reported quarter, Schlumberger repurchased 6.8 million shares of its common stock at an average price of $73.07 for a total purchase price of $500 million.

Our Take

Schlumberger’s overall outlook for 2013 remains largely unchanged from its earlier projections. The company remains unperturbed despite the main economies including China, the U.S. and the Eurozone witnessing mixed fortunes in the second quarter. As a result both oil and gas prices also are following a sideways trend in pricing reflecting the mixed nature of the global economy.
 
Looking forward, Schlumberger’s optimism on rising rig count and customer activity will likely lead to its 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 key regions that include Sub-Sahara Africa, Russia, the Middle East, China and Australia.

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. (BHI). Schlumberger’s strength also lies in effective implementation, strong contracts and new technologies.

The oilfield services behemoth believes that strong leverage to the deepwater segment will help it to perform well over the coming years. While the company makes most of its money outside North America, it bears the brunt of industry-wide weakness in U.S. hydraulic fracturing services as well as softness in the land coiled-tubing business.

Schlumberger currently holds a Zacks Rank #3 (Hold) and is expected to perform in line with the broader market over the next few months. However, there are other better performing oil field service provider stocks such as Zacks Ranked #1 Blueknight Energy Partners, L.P. (BKEP) that are likely to outperform the market.

 

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