Schlumberger (SLB) Up 10.9% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Schlumberger (SLB). Shares have added about 10.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Schlumberger due for a pullback? 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 Q3 Earnings & Revenues Beat Estimates

Schlumberger’sthird-quarter 2019 earnings of 43 cents per share (excluding charges and credits) beat the Zacks Consensus Estimate of 40 cents. The bottom line, however, declined from 46 cents a year ago.

The oilfield service giant recorded total revenues of $8,541 million, which beat the Zacks Consensus Estimate of $8,484 million and improved from the year-ago quarter’s $8,504 million.

Higher wireline activities in Russia and Australia along with contributions from drilling operations in the international market led to the better-than-expected results. The improvement was partially offset by lower activities in Argentina and softer pricing in onshore North America.

The oilfield service firm added that surging investments by clients in the international market aided its year-to-date revenue growth from outside North America. However, conservative capital spending by customers in North America hurt fracking activities in the September quarter, thereby affecting the company’s domestic oilfield service business.

Segmental Performance

Reservoir Characterization and Drilling segments saw a year-over-year increase in revenues while the Production and Cameron units reported a decline.

Increased Wireline activities in Russia, Australia and offshore China aided the Reservoir Characterization segment. Moreover, significant contributions from drilling operations in the international market, comprising Australia and China, drove the company’s drilling business unit.

However, lower activities in Argentina and softer pricing in onshore North America hurt the company’s Production unit. Although the surge in international revenues for OneSubsea and Surface Systems aided the company’s Cameron unit, the decline in margin in some of the product lines acted as a dampener.

Revenues at the Reservoir Characterization unit totaled $1,651 million, 4% higher from the year-ago period. Moreover, pre-tax operating income of $360 million was flat year over year.

Revenues at the Drilling unit rose 2% year over year to $2,470 million. However, pre-tax operating income was $305 million, down 10% year over year.

Revenues at the Production segment declined 3% from the year-earlier quarter to $3,153 million. Moreover, pre-tax operating income fell 10% year over year to $288 million.

Revenues at the Cameron segment amounted to $1,363 million, down 2% year over year. However, pre-tax operating income improved 8% from the prior-year quarter to $173 million.

Financials

As of Sep 30, 2019, the company had approximately $2,292 million in cash and short-term investments plus $16,333 million in long-term debt. This represents a debt-to-capitalization ratio of 40.7%. Through the September quarter, 2.2 million stocks were repurchased by the oilfield services player.

Outlook

The company believes that uncertainty in the market and slowing global economy, owing to trade tensions between the United States and China, will hurt oil demand.

Schlumberger projects 2019 capital expenditure in the band of $1.6 to $1.7 billion, down from $2.2 billion spent in 2018.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -8.65% due to these changes.

VGM Scores

Currently, Schlumberger has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

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