Schlumberger Profit Dips

Schlumberger Limited (SLB - Analyst Report) has reported its third quarter results. Diluted earnings per share from continuing operations were 65 cents, compared to the Zacks Consensus Estimate of 62 cents.

However, operating earnings were lower than both the second quarter earnings of 68 cents per share and year-ago earnings of $1.25. The downtrend was primarily due to a decline in North American drilling activity and weak energy prices.

Total revenue for the quarter decreased nearly 2% sequentially and nearly 25% year over year to $5.43 billion. Oilfield Services revenue was flat sequentially and down 22% year over year to $4.95 billion. WesternGeco revenue decreased more than 17% sequentially and 48% year over year to $463 million.

The Oilfield Services revenue was flat sequentially due to certain geographic strengths that were offset by weaker pricing. Year over year decline was largely due to poor drilling activity in the U.S Gulf of Mexico, partially offset by increased rig count in Canada. Geographically, revenue increase in Latin America was partially offset by the lower Middle East & Asia revenue due to reduced overall activity and the effects of weaker pricing.

North American revenue was flat sequentially but 45% lower year over year, while pre-tax operating income in the region was up significantly quarter over quarter but fell 91% year over year. Latin American revenue increased 8% sequentially but decreased 6% year over year, while pre-tax operating income in the region increased 12% sequentially and decreased 14% year over year.

Europe/CIS/Africa revenue was flat sequentially but fell 18% year over year, while pre-tax operating income in the region decreased 2% sequentially and 33% year over year. Middle East and Asia revenue decreased 6% sequentially and 17% year over year, while pre-tax operating income in the region decreased 7% sequentially and 26% year over year.

At WesternGeco, pre-tax operating income decreased 37% sequentially and 83% from the year-earlier level. Sequentially, the lower operating income was due to reduced sales in North America and the North Sea.

At the end of the quarter, Schlumberger had a cash balance of $4.2 billion and long-term debt of $5.19 billion, representing debt-to-capitalization ratio of 21%.

While North American gas drilling scenario assumes a modest recovery, we do not foresee any major advancement in near-term service pricing. Additionally, revenue for the remainder of the year may also impacted by the discounted pricing made at the beginning of the year.

While these near-term headwinds are expected to weigh on the stock price, the company’s long-term prospects remain positive, given its strong international footprint, particularly in the Eastern Hemisphere.