Schlumberger Limited (SLB) reported its third-quarter earnings of 70 cents per share, in line with the Zacks Consensus Estimate and ahead of the year-earlier profit of 65 cents per share. The year-over-year improvement was due to strong land drilling activity in the United States and Canada, which was offset by the deepwater drilling moratorium. Including charges and credits, earnings in the third quarter were $1.38 per share.
The company’s third-quarter revenue ramped up by 26% to $6.8 billion from $5.4 billion in the year-ago quarter, and marginally surpassed the Zacks Consensus Estimate of $6.7 million.
Schlumberger closed its acquisition of Smith International Inc. during the quarter. Smith businesses contributed $810 million to total revenue and $84 million of pretax operating income, taking into account one month of activity post acquisition. The merger was dilutive to the third-quarter 2010 earnings-per-share by 2 cents.
Segmental Highlights
Oilfield Services revenue experienced a 12% year-over-year increase to $5.54 billion, while it increased 2% sequentially.
In North America, third-quarter revenue jumped 53% year over year to $1.26 billion. Pre-tax operating income in the region increased substantially by 693% year over year to $219 million.
Latin American revenue remains flat year over year to $1.07 billion, while pre-tax operating income decreased 19% year over year to $159 million.
Europe/CIS/Africa revenue fell 3% year over year to $1.73 billion, while pre-tax operating income in the region decreased 25% year over year to $317 million.
Middle East and Asia revenue climbed 14% year over year to $1.40 billion, while pre-tax operating income in the region increased 9% year over year to $425 million.
WesternGeco revenue boosted 3% year over year to $478 million in the reported quarter and pre-tax operating income dropped 34% year over year to $40 million.
Third-quarter revenue decreased 1% sequentially in the M-I SWACO segment to $1.14 billion and pre-tax operating income was down 3% to $141 million on a quarter-to-quarter basis.
Smith Oilfield recorded revenue of $655 million (up 1% sequentially) and pre-tax operating income of $68 million (down 19% sequentially).
Balance Sheet
At the end of the quarter, Schlumberger had a cash balance of $2.6 billion and long-term debt of $4.82 billion, representing a debt-to-capitalization ratio of 13.4%. During the quarter, the company repurchased 6.8 million shares for $396 million.
Outlook
For the fourth quarter, the company expects strong activity in North America, but remains apprehensive about a rapid return to deepwater drilling in the US Gulf of Mexico despite the lifting of the moratorium.
We believe Schlumberger’s combination of balance-sheet strength, technological leadership and management depth should benefit in the long term. We also believe the company is favorably positioned to benefit from the current trends in oilfield services, given improving operator spending and greater need for stimulation and completion of services in North America.
However, we remain concerned about the normal seasonal declines in Russia expected in the fourth quarter along with uncertain operations in Mexico until next year.
Hence, we prefer to remain Neutral at this stage. Schlumberger holds a Zacks #3 Rank, which translates into a short-term Hold’ recommendation.
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