Energy

Why Investors Aren't Running Away From Schlumberger Stock

Paul Ausick

Published: July 24, 2020 8:36 am

Schlumberger Ltd. (NYSE: SLB) reported second-quarter 2020 results before markets opened on Friday. The oilfield services firm reported adjusted diluted earnings per share (EPS) of $0.05 on revenues of $5.4 billion. In the same period a year ago, Schlumberger reported adjusted EPS of $0.35 on revenues of $8.3 billion. Second-quarter results also compare to the consensus estimates for a net loss of $0.01 on revenues of $5.36 billion.

On a GAAP basis, Schlumberger posted a net loss of $2.47 per share, less than half the $5.32 loss in the first quarter. Largely that’s due to a pretax restructuring and impairment charge of $3.7 billion, less than half the $8.5 billion charge the company took in the first quarter. Of the second-quarter write-down, restructuring charges accounted for $1 billion, and the rest was a noncash impairment of some assets.

CEO Olivier Le Peuch noted that operating cash flow nearly doubled from $803 million in the second quarter of 2019 to $1.6 billion. Free cash flow rose from $465 million a year ago to $644 million.

Calling the second quarter “probably the most challenging” in “past decades,” Le Peuch attributed the 28% decline in revenue to the “unprecedented fall in North America activity, and international activity drop due to downward revisions to customer budgets accentuated by COVID-19 disruptions.”

North American revenue dropped by 58% year over year and 48% sequentially to $1.2 billion. International revenue fell by 24% year over year and 19% sequentially to a total of $4.1 billion.

Schlumberger already has cut its dividend by 75%, from $2.00 annually to $0.50, in an effort to conserve cash and preserve the balance sheet. The company did not repurchase any shares during the quarter.

Schlumberger said it expects to spend approximately $1.1 billion on capital spending in 2020, down from $1.7 billion in 2019. The company did not offer guidance in its press release, but consensus estimates call for a third-quarter loss per share of $0.02 and revenues of $5.1 billion. For the full year, EPS is forecast at $0.21 on revenues of $23.12 billion.

The oilfield services business has been hit hard by low crude oil prices and the COVID-19 pandemic, which has cut demand (and prices) even more. Schlumberger’s results match up with the report from Halliburton Co. (NYSE: HAL) released earlier this week. For now, the most this industry can hope for is to come out on the other side of the downturn.

Shares traded up by about 1.4% in Friday’s premarket to $19.55. The stock’s 52-week range is $11.87 to $41.14. The 12-month consensus price target was $21.43 before the results were announced. Schlumberger’s shares have dropped by nearly 49% in the past 12 months.