Schlumberger (SLB) Beats on Q1 Earnings, Cuts Dividend by 75%

Schlumberger Limited SLB announced first-quarter 2020 earnings of 25 cents per share (excluding charges and credits), surpassing the Zacks Consensus Estimate by a penny. However, the bottom line fell 17% from 30 cents a year ago.

The oilfield service giant recorded total revenues of $7,455 million, which missed the Zacks Consensus Estimate of $7,574 million and decreased 5% from the year-ago quarter’s $7,879 million.

The better-than-expected earnings can be attributed to resilience in the company’s international business, which performed amid a difficult operating environment. Profits from Drilling, Reservoir Characterization and Cameron segments outpaced expectations. However, the positives were partially offset by lower Well Services activity and weaker Artificial Lift Solutions sales in international markets. Moreover, decreased software and multiclient seismic licenses’ sales affected Schlumberger’s quarterly results.

Schlumberger Limited Price, Consensus and EPS Surprise

Schlumberger Limited Price, Consensus and EPS Surprise

Schlumberger Limited price-consensus-eps-surprise-chart | Schlumberger Limited Quote

Segmental Performance

Revenues in all the four reporting segments of Schlumberger decreased in the first quarter. The company’s businesses in the quarter were affected by global market uncertainty that stemmed from coronavirus pandemic, and an oil-price war between Saudi Arabia and Russia. The oversupplied hydrocarbon market created a challenging environment for Schlumberger’s clients. As such, drilling activities and customer spending in North America significantly declined.

The resilience in the company’s international business, which performed amid a difficult operating environment, benefited quarterly results. However, in the international market, lower winter activities in Russia, Central Asia, United Kingdom and other regions affected Schlumberger’s businesses. Moreover, WesternGeco® multiclient seismic license sales declined in the Latin America region. Declined product sales in the Middle East & Asia affected the company’s revenues.

Revenues at the Reservoir Characterization unit totaled $1,311 million, down 10% from the year-ago period. Moreover, pre-tax operating income of $184 million was down 35% year over year and lagged the Zacks Consensus Estimate of $299 million.

Revenues at the Drilling unit declined 4% year over year to $2,291 million. Moreover, pre-tax operating income was $285 million, down 7% year over year. Nonetheless, the figure outpaced the Zacks Consensus Estimate of $235 million.

Revenues at the Production segment declined 6% from the year-earlier quarter to $2,703 million. Also, pre-tax operating income decreased 2% year over year to $212 million but beat the Zacks Consensus Estimate of $194 million.

Revenues at the Cameron segment amounted to $1,254 million, marginally down from the year-ago period. Moreover, pre-tax operating income declined 18% from the prior-year quarter to $121 million but surpassed the Zacks Consensus Estimate of $98 million.

Cash Flow

The company recorded positive free cash flow of $179 million in the quarter against the year-ago period’s negative $283 million.

Due to the current market uncertainty, the company declared quarterly dividend of 12.50 cents, reflecting a 75% decline from the prior dividend payout of 50 cents. The announced dividend is payable on Jul 9 to shareholders of record on Jun 3. This move will likely allow the company to conserve cash.

Financials

Capital expenditures in the quarter were recorded at $407 million, down from the year-ago period’s $413 million.

As of Mar 31, 2020, the company had approximately $3,344 million in cash and short-term investments, plus $15,409 million of long-term debt. This represented a debt-to-capitalization ratio of 49.1%.

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Schlumberger projects 2020 capital expenditure at $1.2 billion, suggesting a decline from the 2019 level of $1.7 billion. Overall capital investment — which includes capital expenditures, and multiclient and APS investments — is expected to be $1.8 billion, indicating a 30% decrease from 2019 levels.

The company expects global capital expenditure to decrease by 20% this year. North America alone is expected to witness a 40% drop in capital expenditure.

Zacks Rank & Stocks to Consider

Currently, Schlumberger has a Zacks Rank #3 (Hold). Some better-ranked players in the energy space are Oceaneering International, Inc. OII, Murphy USA Inc. MUSA and Noble Corporation NE, each having a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Oceaneering’s 2020 earnings per share are expected to rise more than 17% year over year.

Murphy USA’s 2020 earnings per share are expected to rise 17.8% year over year.

Noble Corp.’s 2020 earnings per share are expected to gain 12% year over year.

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