It has been about a month since the last earnings report for Schlumberger (SLB). Shares have lost about 3.7% 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 Beat Estimates, Fall Y/Y
Schlumbergerannounced second-quarter 2020 earnings of 5 cents per share (excluding charges and credits), surpassing the Zacks Consensus Estimate of break-even earnings. However, the bottom line declined from 35 cents a year ago.
The oilfield service giant recorded total revenues of $5,356 million, which missed the Zacks Consensus Estimate of $5,441 million and declined 35% from the year-ago quarter’s $8,269 million.
The better-than-expected earnings can be attributed to resilience in the company’s international business despite the coronavirus-induced unfavorable business environment. The company’s cost-reduction initiatives that comprise headcount rationalization and furloughs also aided the bottom line. However, a plunge in OneStim pressure-pumping activity in the land market of North America offset the positive.
Revenues in all four reporting segments of Schlumberger declined in the second quarter. The company’s businesses related to Reservoir Characterization and Drilling were affected by lower activities in the North American land market. Disruption in activities in several international GeoMarkets also led to both the segments’ underperformance. The negatives were partially offset by the company’s cost-reduction initiatives that comprise headcount rationalization and furloughs.
The company’s Production segment was affected by a plunge in OneStim pressure-pumping activity in the land market of North America. A decline in Surface Systems and Valves & Process Systems revenues in North America hurt the company’s Cameron business unit. Overall, the company believes that its international business was resilient to the coronavirus pandemic, which has likely helped the oilfield service giant protect its liquidity profile and cashflow.
Revenues at the Reservoir Characterization unit totaled $1,052 million, down 32% from the year-ago period. Moreover, pre-tax operating income of $185 million was down 42% year over year.
Revenues at the Drilling unit declined 28% year over year to $1,731 million. Moreover, pre-tax operating income was $165 million, down 45% year over year.
Revenues at the Production segment declined 48% from the year-earlier quarter to $1,615 million. Also, pre-tax operating income deteriorated 89% year over year to $25 million.
Revenues at the Cameron segment amounted to $1,015 million, down 24% from the year-ago period. Moreover, pre-tax operating income declined 51% from the prior-year quarter to $80 million.
Despite the company’s $370 million of severance payments through the June quarter, the oilfield service firm was able to generate free cash flow of $465 million. Moreover, despite the unfavorable business scenario owing to the pandemic, the company maintained its dividend at 12.5 cents per share. The announced dividend is payable on Oct 8 to shareholders of record as of Sep 2.
Capital expenditures in the quarter were recorded at $251 million. As of Jun 30, 2020, the company had approximately $3,589 million in cash and short-term investments plus $16,763 million of long-term debt. This represented a debt-to-capitalization ratio of 58.2%.
Schlumberger projects 2020 capital expenditure at $1.1 billion, suggesting a decline from the 2019 level of $1.7 billion. Schlumberger projects 2020 capital investment at $1.5 billion, suggesting a fall of 45% year over year.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 2358.18% due to these changes.
Currently, Schlumberger has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Schlumberger has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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