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The world’s largest oilfield services provider Schlumberger Ltd. (SLB - Analyst Report) reported adjusted first quarter 2013 earnings of $1.01 per share (excluding special items), beating the Zacks Consensus Estimate of 99 cents with ease.

Also, the quarter’s results increased from 96 cents per share earned in the year-earlier quarter. The results were boosted by the company’s strong international exposure, focus on execution and integration capabilities.

Income from continuing operations, excluding charges, was $1.35 billion, up approximately 4% year over year.

Total revenue of $10.7 billion was up 7.6% from the year-earlier level of $9.9 billion and was in line with the Zacks Consensus Estimate.

First Quarter Highlights

Oilfield Services: Segmental revenues were up approximately 8% year over year at $10.7 billion in the first quarter. Pre-tax operating income of more than $2.0 billion increased 4% year over year.

All groups – Reservoir Characterization, Drilling Group and Production Group – registered a sequential fall or remained flat. The sequential downfall was due to the strong year-end product, software and multiclient sales experienced in the fourth quarter of 2012. Seasonal activity slowdowns in the North Sea, Russia and China, weather-related work delays in the Brunei, Malaysia & Philippines and Australasia GeoMarkets, and lower pricing as a result of excess capacity in US land also contributed to the sequential decline. However, these sequential effects were partially offset by strong exploration and drilling activity in Angola, and strong winter project activity in Western Canada & Alaska.

Reservoir Characterization: This group posted revenue of $2.8 billion in the first quarter, up 9% year over year. Pre-tax operating income was $758 million, which increased 13% from the prior-year quarter.

Drilling Group: First quarter revenues recorded by this group was $4.1 billion, which improved 9% annually. Pre-tax operating income was $741 million, up 13% year over year.

Production Group: The revenue for the quarter recorded by this group was $3.8 billion, which climbed 7% annually. Pre-tax operating income was $573 million, down 8% year-over-year.

Financials

As of Mar 31, 2013, the company had approximately $5.6 billion in cash and short-term investments and $8.1 billion in long-term debt, representing a debt-to-capitalization ratio of 23.7%. In the reported quarter, Schlumberger repurchased 2.5 million shares of its common stock at an average price of $77.63 for a total purchase price of $193 million.

Our Take

Looking forward, Schlumberger’s overall outlook for 2013 remains largely unchanged from its earlier projections. The company remains unperturbed despite the main economies including China, the U.S. and the Eurozone witnessing mixed fortunes in the first quarter. Schlumberger expects its international spending on exploration and production to climb 10% this year and activity to increase in the U.S. Gulf of Mexico. The company also expects steady growth in key regions that include Sub-Sahara Africa, Russia, the Middle East, China and Australia. On the flipside, lower-than-expected rig activity and continuing pricing weakness is keeping the management apprehensive about its North American operations.

Schlumberger generates about two-thirds of its revenues internationally, marking the highest ratio among the biggest oilfield service providers, which include Halliburton Company (HAL - Analyst Report) and Baker Hughes Inc. (BHI - Analyst Report). Schlumberger’s strength also lies in effective implementation, strong contracts and new technologies.

The oilfield services behemoth believes that strong leverage to the deepwater segment will help it perform well over the coming years. While the company makes most of its money outside North America, it suffers from the industry-wide weakness in U.S. hydraulic fracturing services as well as softness in the land coiled-tubing business.

Schlumberger currently holds a Zacks Rank #3 (Hold) and is expected to perform in line with the broader market over the next few months. However, there are other better performing sector stocks, like Zacks Ranked #1 Range Resources Corporation (RRC - Analyst Report), that are likely to outperform the market.



 

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