Schlumberger (SLB) Q2 Earnings Beat On Increased Drilling

Oilfield service giant Schlumberger Limited’s (NYSE:SLB) second-quarter 2017 earnings of 35 cents per share (excluding charges and credits) beat the Zacks Consensus Estimate of 30 cents and the year-ago figure of 23 cents.

The company reported total revenue of $7,462 million, which improved from the year-earlier level of $7,164 million and also surpassed the Zacks Consensus Estimate of $7,258 million.

The strong results were driven by a rebound in drilling activities in Russia and the North Sea. Higher demand for directional drilling techniques, especially in the domestic onshore market, also supported the numbers.

Schlumberger is the first among the “Big Four” oilfield service and equipment providers to release its quarterly results. The other players – Baker Hughes, a GE company (NYSE:BHGE) , Halliburton Company (NYSE:HAL) and Weatherford International plc (NYSE:WFT) – will report second-quarter results next week.

Segmental Performance

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

Drilling Group revenues increased primarily on contributions from the international market. Rebound in seasonal works in Russia and the North Sea contributed to growth. Higher demand for directional drilling techniques, especially in the domestic onshore market, also supported the top line. However, the positives were partially negated by reduced operations related to the offshore market in the Gulf of Mexico.

Results at the Production Group were positively impacted by higher hydraulic fracturing work in the domestic land market. Pricing recovery in the North American land areas, improved unconventional land works in Argentina along with higher activities in China and Russia were also led to the improvement. Meanwhile, a decrease in production at the SPM Shushufindi development partially offset the positives.

The Reservoir Characterization segment was supported by strong contributions from the international market. Surge in sales of WesternGeco multiclient seismic license along with higher contributions from drillstem test operations in the UAE led to better results. Higher wireline revenues from the North Sea and Russia also favored the business unit.

Reservoir Characterization: This group posted revenues of $1,759 million as against $1,586 million in the prior-year quarter. Pre-tax operating income was $299 million, up 12% year over year.

Drilling Group: Revenues of $2,107 million rose 4% year over year. Pre-tax operating income was $302 million, up 77% year over year.

Production Group: Revenues recorded by this group increased 18% from the year-earlier quarter to $2,496 million. Pre-tax operating income skyrocketed 170% year over year to $221 million.

Cameron Group: This segment generated revenues of $1,265 million, down 17% year over year. Pre-tax operating income plunged 30% from the prior-year comparable period to $174 million.

Financials

As of Jun 30, 2017, the company had approximately $6,218 million in cash and short-term investments and $16,600 million in long-term debt. This represents a debt-to-capitalization ratio of 32%. In the April-to-June quarter, the company repurchased 5.5 million shares.

Q2 Price Performance

During second quarter of 2017, Schlumberger’s decline of 15.7% is in-line with the industry it belongs to.

Guidance

During 2017, the company reaffirmed its decision to invest $2.2 billion, slightly higher than $2.1 billion spent in 2016.

The oilfield service player expects healthy activity in North America during the second half of this year. Also, in some of the international markets, Schlumberger anticipates projects and drilling activity to pick up pace.

Key Development

In a separate announcement, the company declared its intention to buy a 51% equity stake in Eurasia Drilling Company Limited.

Zacks Rank

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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