Schlumberger (SLB) Q4 earnings preview: North America recovery, margins in focus

Oil and gas company Schlumberger (NYSE: SLB) performed better than most of its peers in the last quarter, even though the oilfield services industry was hurt by weakness in drilling activity in North America.

Experts are of the view that the management’s efforts to improve margin growth would reflect in the oilfield service provider’s December-quarter results, which will be published on Friday at 6:50 am ET. Earnings are seen moving up 3% year-over-year to $0.37 per share, while revenues are expected to remain broadly unchanged at $8.17 billion.

Overseas Push

The ongoing international expansion, marked by continuing investments in overseas oilfields, is paying off – especially in Latin America, Europe and the Gulf of Mexico. It is expected to drive top-line growth for Schlumberger this time. However, low capacity utilization and margin pressures show that the company needs to spend more on exploration and production.

Also see: Schlumberger Q3 2019 Earnings Call Transcript

It needs to be noted that the industry has been hurt by the slowdown in fracking activity. Last year, there was a marked decline in rig count even as oil prices kept falling. But, the overall environment improved in recent months as crude prices rebounded and the macroeconomic conditions became more conducive. Also, the decline in interest rates bodes well for the companies as far as investment is concerned.

Headwinds

The uncertainties in international trade, mainly due to the tariff dispute between the US and China, remain a major headwind for oilfield service providers. The rising political tension in the Middle East has added to the challenges facing the industry. It also points to pricing and demand issues in the long term, though crude prices spiked temporarily.

Looking Back

In the third quarter, positive performance in the international market was offset by pricing weakness in North America, though Schlumberger’s exposure in the region is low compared to its competitors. Earning decreased 7% annually to $0.43 per share but came in above the market’s prediction, while revenues remained flat.

Competition

Among others, Halliburton (HAL) will be publishing its fourth-quarter results on January 21 before the opening bell. Analysts’ consensus estimate is for a 29% fall in earnings to $0.29 per share, on revenues of $5.11 billion.

Related: ExxonMobil’s profits halve in Q3; expands production

After falling to a multi-year low, the shares of Schlumberger have been on the recovery path since the last earnings report. In the past twelve months, however, they dropped 11% and continue to underperform the S&P 500 index.

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