Schlumberger Fails to Impress as CEO Sees Mixed Outlook

Jul 18, 2014 9:44 am ET

(Updates with comments from CEO in sixth paragraph.)

July 18 (Bloomberg) -- Schlumberger Ltd.’s 11th consecutive quarter of beating analysts’ earnings estimates failed to impress investors as the largest oilfield servicer said the world’s economic situation will be slow to change.

“The overall global economic outlook continues to be mixed,” Chief Executive Officer Paal Kibsgaard said in a statement yesterday. Kibsgaard sees “a slightly more cautious” short-term outlook for gross domestic product gains as the U.S. recovers from a harsh winter, Europe experiences “anemic” growth, forecasts for Brazil weaken and China’s economy stabilizes.

Excluding one-time items, the Paris- and Houston-based company earned $1.37 a share in the second quarter, exceeding the $1.36 average of 31 estimates compiled by Bloomberg. Sales climbed 7.8 percent to $12.1 billion, beating the $11.95 billion estimate.

Results from North America, where shale formations have driven a boom in oil and natural gas production, were a bit below expectations, said Rob Desai, an analyst at Edward Jones in St. Louis. International profit was led by the region comprising Europe, Africa and Russia, with sales climbing 13 percent to $3.27 billion from $2.88 billion in the first quarter. The company generates about two-thirds of sales outside of North America, the highest rate among the largest service providers, including Halliburton Co. and Baker Hughes Inc.

‘Didn’t Kill’

“It was a good quarter, not a great quarter,” Desai, who rates the shares a buy and doesn’t own them, said in a phone interview. “They didn’t kill it, but it’s a good progression.”

North America, which saw its operating profit margin fall to 18 percent from 19.7 percent a year earlier, was partly hurt by higher fracking sand supply costs, Kibsgaard said. Customers switched to different sizes and volumes of the granules used to prop open cracks in the oil-bearing rock.

Schlumberger, which has 35 buy and three hold recommendations from analysts, fell 3 percent to $111.16 at 9:31 a.m. in New York.

Schlumberger drills wells and offers energy producers other services, including mapping underground pockets of oil and hydraulic fracturing, or fracking, which blasts water, sand and chemicals underground to free trapped hydrocarbons.

Baker Hughes, the world’s third-largest oilfield servicer, said yesterday the North American fracking market is still 20 percent oversupplied. After two years of falling prices for fracking services from a glut in equipment, prices are expected to remain little changed this year in the U.S. and Canada, and increase in some U.S. regions in early 2015, according to a Feb. 14 report by PacWest Consulting Partners LLC.

Sanctions Settlement?

Schlumberger recorded a $205 million charge in the quarter amid settlement talks stemming from a 2009 grand jury probe of its operations in countries subject to sanctions. There’s no certainty a settlement will be reached, the company said.

The company is seeing no impact to its business in Russia from sanctions imposed on the energy industry there, Kibsgaard said.

“In Russia so far this year, activity has been as planned or slightly stronger,” Kibsgaard said.

Net income dropped to $1.8 billion, or $1.37 a share, from $2.2 billion, or $1.66, a year earlier, Schlumberger said. Last year’s results included a one-time $1.03 billion gain from the formation of a joint venture with Cameron International Corp.

Baker Hughes yesterday reported adjusted per-share earnings that beat estimates and were 70 percent above the results from the same period last year. Halliburton is scheduled to report earnings on July 21.