Wednesday, April 20, 2011

Schlumberger (NYSE: SLB): Q1 Earnings Preview 2011

Schlumberger Limited (NYSE: SLB), the largest oilfield services provider, is scheduled to release its fourth-quarter earnings before the opening bell on Thursay, April 21, 2011. Analysts, on average, expect the company to report earnings of 77 cents per share on revenue of $8.82 billion. In the year ago period, the company reported earnings of 62 cents cents per share on revenue of $5.60 billion.

Schlumberger Limited and its subsidiaries supply technology, integrated project management, and information solutions to the oil and gas industry worldwide.

In the preceding fourth-quarter, the Houston, Texas-based company's net income was $605 million, or 66 cents a share, compared to $243 million, or 27 cents a share, in the year-earlier quarter. On an adjusted basis, the company earned 68 cents a share in the latest quarter. Revenue jumped to $5.16 billion from $3.69 billion. Analysts, on average, expected the company to report earnings of 63 cents per share on revenue of $4.87 billion.

At its last earnings call in January, the company said that it expects to grow revenue and operating income in 2011 by improving prices in select basins where the demand for its integrated services is robust. The company noted that it expects activity increases to continue while experiencing the usual seasonal decline in software and direct sales in the first quarter.

Last month, the company said that it expects turmoil in the Middle East and Africa to knock 8 to 10 cents per share off first-quarter profit. The company said that during the quarter in review, there were "significant" revenue disruptions in Egypt, Tunisia and Libya. Minor disruptions were felt in Ivory Coast, Yemen, Bahrain and Oman, and in Algeria due to logistics from Tunisia. "While activity has returned to normal in Egypt and Tunisia, we expect continued disruptions in Yemen, no short-term return of activity in Libya and uncertainty at the current time over activity in Bahrain,"  stated Chief Executive Andrew Gould. Schlumberger is the sector's biggest player in Libya and its comments appeared to calm fears about the company's potential financial damage from the region. However, Gould repeated his bullish view on the growing international demand for services and in particular of Saudi Arabia's commitment to expand spare capacity regardless of any pullback in oil prices.

Schlumberger is also likely to benefit from bullish oil drilling trends in service-intensive areas. The current North American fundamentals are certainly robust. The company has been particularly benefiting from increased activity in the unconventional oil and gas shale plays in North America, which have more than made up for the drop in deepwater Gulf of Mexico activity. Also, high oil prices have driven producers and explorers to step up spending on North American unconventional shale plays and international offshore discoveries. 

The company's stock currently trades at a forward P/E  (fye Dec 31, 2012) of 17.41 and PEG ratio (5 yr expected) of 1.18. In terms of stock performance, Schlumberger shares have gained nearly 30 percent over the past year.

Full Disclosure: None.
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