Why Schlumberger Q2 Earnings Are Good News

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Schlumberger Ltd. (NYSE: SLB) reported second-quarter 2017 results before markets opened on Friday. The oil field services firm reported adjusted diluted quarterly earnings per share (EPS) of $0.35 on revenue of $7.5 billion. In the same period a year ago, Schlumberger reported adjusted EPS of $0.23 on revenue of $7.16 billion. Second-quarter results compare to the consensus estimates for EPS of $0.30 on revenue of $7.24 billion.

On a GAAP basis, Houston-based Schlumberger posted a net loss of $0.05 per share compared with a net loss of $1.56 per share in the second quarter of 2016. The company took a $510 million second-quarter impairment charge primarily related to a financing agreement with Schlumberger’s main Venezuelan customer. This agreement resulted in the exchange of $700 million of outstanding accounts receivable for an interest-bearing promissory note. Schlumberger recorded this note at its estimated fair value on the date of exchange, which resulted in a charge.

Pre-tax operating margin increased from 10.4% in the year-ago quarter to 12.7% in the second quarter of 2017 and pre-tax operating income rose 25% to $950 million year over year.

Chief Executive Officer Paal Kibsgaard touted Schlumberger’s 8% sequential revenue growth and 40% EPS growth. North American revenue rose 18% sequentially to $2.2 billion, while revenue in Latin America climbed 9%, increased by 6% in Europe/Confederation of Independent States (Russia et al.)/Africa, and rose 1% in the Middle East/Asia region. Overall, international revenue increased 4% sequentially but fell by the same amount year over year.

Kibsgaard sees improvement ahead, especially in international markets:

“While the activity outlook in North America for the second half of the year remains robust, we are now also seeing more positive signs in the international markets with increases in activity and new project plans starting to emerge in several GeoMarkets. The strengthening in the international markets has so far been concentrated around land activity in Western Siberia and in the OPEC Gulf countries but we are now also seeing an increasing number of new offshore projects being prepared for tendering and final investment decision (FID) in many of the world’s shallow water basins.”

An uptick in international business, particularly in offshore projects, would be a big boost. Second-quarter orders in the sub-sea segment fell by more than $350 million sequentially and the company’s backlog also slipped sequentially from to $2.9 billion $3.2 billion.

During the second quarter, Schlumberger repurchased 5.5 million shares at an average price of $72.34 per share for $398 million. The company also approved a quarterly dividend payment of $0.50 on October 13 for shareholders of record as of Sept. 6.

Schlumberger did not offer guidance in its press release, but consensus estimates call for third-quarter EPS of $0.39 and revenue of $7.7 billion. For the full year, EPS is forecast at $1.42 on revenue of $26.96 billion.

Shares traded up about 0.52% in Friday at $67.39. The stock’s 52-week range is $64.15 to $87.84. The 12-month consensus price target was $83.00 before results were announced.