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Why Is Schlumberger (SLB) Down 14.4% Since Last Earnings Report?

Zacks Equity Research
Kemet (KEM) closed at $17.88 in the latest trading session, marking a +1.65% move from the prior day.

A month has gone by since the last earnings report for Schlumberger (SLB). Shares have lost about 14.4% 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 the most recent earnings report in order to get a better handle on the important drivers.

Schlumberger Q1 Earnings Meet Estimates, Decline Y/Y

Schlumberger’sfirst-quarter 2019 earnings of 30 cents per share (excluding charges and credits) were in line with the Zacks Consensus Estimate, courtesy of contributions from Integrated Drilling Services (IDS) projects in Saudi Arabia, India and Mexico.

The bottom line, however, declined from 38 cents a year ago owing to lower contributions from directional drilling in the land market of North America. Decline in OneStim revenues from the continent’s land regions added to the concerns.

The oilfield service giant recorded total revenues of $7,879 million, marginally higher than the year-ago quarter figure. The top line also beat the Zacks Consensus Estimate of $7,842 million.

Segmental Performance

Reservoir Characterization and Production segments saw a year-over-year drop in revenues while the Drilling unit reported an increase.

The decline in contributions associated to wireline services from Russia & Central Asia GeoMarket hurt the Reservoir Characterization segment. In the US Gulf of Mexico, there was a drop in sales of multiclient seismic license, adding to the segment’s woes.

Contributions from IDS projects primarily worked in favor of the company’s Drilling unit. However, the positives were partially marred by a revenue decline from directional drilling in the land market of North America and reduced drilling operations in the Northern Hemisphere.

Decline in OneStim revenues from the land market of North America hurt the Production segment. The results were partly negated by a surge in activities associated to Schlumberger Production Management (SPM) in Argentina, Canada and Ecuador.

Revenues at the Reservoir Characterization unit totaled $1,543 million, marginally lower year over year. Pre-tax operating income declined 4% to $293 million from $306 million in first-quarter 2018.

Revenues at the Drilling unit rose 12% year over year to $2,387 million. Pre-tax operating income was $307 million, up 5% year over year.

Revenues at the Production segment declined 2% from the year-earlier quarter to $2,890 million. However, pre-tax operating income was flat year over year at $217 million.

Revenues at the Cameron segment amounted to $1,174 million, down 10% year over year. Pre-tax operating income dropped 18% from the prior-year quarter to $137 million.

Financials

As of Mar 31, 2019, the company had approximately $2,155 million in cash and short-term investments plus $16,449 million in long-term debt. This represents a debt-to-capitalization ratio of 31.2%. Through the March quarter, 2.3 million stocks were repurchased by the oilfield services player.

Outlook

Schlumberger added that explorers and producers are constrained by the reduction in capacity for borrowings and increase in cost of capital. Also, the explorers are facing constant pressure from investors 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, added the world’s largest oilfield service firm.

The company is, however, expecting an improvement in the international markets where the count of drilling rigs is rising and final investment decisions (FID) for clients’ projects are on the rise. The tailwinds are supporting Schlumberger’s projection of 7 to 8% surge in spending by upstream energy firms through 2019 in international markets.

How Have Estimates Been Moving Since Then?

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

VGM Scores

At this time, Schlumberger has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. 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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