Why Is Schlumberger (SLB) Down 6% Since the Last Earnings Report?

It has been about a month since the last earnings report for Schlumberger N.V. SLB. Shares have lost about 6% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Schlumberger Q2 Earnings Beat on Increased Drilling

Schlumberger’s second-quarter 2017 earnings of $0.35 per share (excluding charges and credits) beat the Zacks Consensus Estimate of $0.30 and the year-ago figure of $0.23.

The company reported total revenue of $7,462 million, which improved from the year-earlier level of $7,164 million and also surpassed the Zacks Consensus Estimate of $7,258 million.

The strong results were driven by a rebound in drilling activities in Russia and the North Sea. Higher demand for directional drilling techniques, especially in the domestic onshore market, also supported the numbers.

Segmental Performance

Each of the groups – Reservoir Characterization, Drilling Group and Production Group – registered a year-over-year increase in revenues.

Drilling Group revenues increased primarily on contributions from the international market. Rebound in seasonal works in Russia and the North Sea contributed to growth. Higher demand for directional drilling techniques, especially in the domestic onshore market, also supported the top line. However, the positives were partially negated by reduced operations related to the offshore market in the Gulf of Mexico.

Results at the Production Group were positively impacted by higher hydraulic fracturing work in the domestic land market. Pricing recovery in the North American land areas, improved unconventional land works in Argentina along with higher activities in China and Russia were also led to the improvement. Meanwhile, a decrease in production at the SPM Shushufindi development partially offset the positives.

The Reservoir Characterization segment was supported by strong contributions from the international market. Surge in sales of WesternGeco multiclient seismic license along with higher contributions from drillstem test operations in the UAE led to better results. Higher wireline revenues from the North Sea and Russia also favored the business unit. 

Reservoir Characterization: This group posted revenues of $1,759 million as against $1,586 million in the prior-year quarter. Pre-tax operating income was $299 million, up 12% year over year.

Drilling Group: Revenues of $2,107 million rose 4% year over year. Pre-tax operating income was $302 million, up 77% year over year.

Production Group: Revenues recorded by this group increased 18% from the year-earlier quarter to $2,496 million. Pre-tax operating income skyrocketed 170% year over year to $221 million.

Cameron Group: This segment generated revenues of $1,265 million, down 17% year over year. Pre-tax operating income plunged 30% from the prior-year comparable period to $174 million.

Financials

As of Jun 30, 2017, the company had approximately $6,218 million in cash and short-term investments and $16,600 million in long-term debt. This represents a debt-to-capitalization ratio of 32%. In the April-to-June quarter, the company repurchased 5.5 million shares.

Guidance

During 2017, the company reaffirmed its decision to invest $2.2 billion, slightly higher than $2.1 billion spent in 2016.

The oilfield service player expects healthy activity in North America during the second half of this year. Also, in some of the international markets, Schlumberger anticipates projects and drilling activity to pick up pace.

Key Development

In a separate announcement, the company declared its intention to buy a 51% equity stake in Eurasia Drilling Company Limited.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been eight revisions higher for the current quarter compared to two lower.

Schlumberger N.V. Price and Consensus

 

Schlumberger N.V. Price and Consensus | Schlumberger N.V. Quote

VGM Scores

At this time, the stock has an average Growth Score of C, however its Momentum is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for momentum investors than those looking for value and growth.

Outlook

Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. Interestingly, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.

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