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Impressive Earnings From Schlumberger

Posted on: October 19, 2008 - Email Article - Printable Version

Charles W. Petredis

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Friday before the opening bell Schlumberger Ltd. [SLB: 48.23, +1.41 (+3.01%)] announced their third quarter 2008 earnings results, and they were promising to say the least. Here is a look at the numbers compared to the other relevant quarters (Quarterly revenues first followed by quarterly earnings per share):

Q3 2008 Actual - $7.26B, $1.25
Q3 2008 Estimated - $7.02B, $1.25
Q2 2008 Actual - $6.75B, $1.16
Q3 2007 Actual - $5.93B, $1.09

As you can see from the numbers, Schlumberger has had phenomenal growth especially considering it is the largest services company in the world. Their bottom line grew at 13% this quarter. This is made even more impressive by the fact that demand for their services was down heavily during the back half of the third quarter as oil began its decline from $147 to $69.

Outlook

Management issued extremely cautious guidance going forward, although this was not limited to Schlumberger alone. Management made it a point to say that these are industry wide issues. Schlumberger is the first major energy company to report earnings every quarter and generally they have been correct in calling the marco industry trends. The executives noted that there will be a slow down in demand in the North American region due to the extremely tight and unfavorable credit environment. They noted that this would spill over slightly to emerging economies but that the main problems would be located in North America.

Schlumberger did not issue guidance yet for 2009 but CEO Andrew Gould told analysts that, “It is still too soon to predict to what extent current events will affect overall in 2009, but we anticipate a slowing in the rate of increase of our customer spending.” Preliminary analyst estimates for Q4 2008 earnings were diluted earnings per share of $1.36 on revenues of $7.41B. These estimates are down a penny from a week ago and down two cents from a month ago. Many investors see these estimates as likely to slip somewhat further if oil stays below the $80-$100 trading range for any substantial period of time. CEO Andrew Gould also predicted that world oil suppliers would begin to slowly dwindle as production begins to shut in from high cost sources such as deepwater drilling and other unconventional plays. He also sees this stabilization in demand occurring at some point during 2009 causing a push for higher oil prices during the second half of 2009. He even added that due to the new market conditions he would look at capital expenditures much more closely to evaluate if all current projects were prudent.