Everyone knows that capital spending budgets at the world’s oil companies are falling.
But it just doesn’t seem to matter for Schlumberger (SLB.) Schlumberger is a member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/
On January 17 the oil services and technology company reported fourth quarter earnings of $1.35 a share, beating Wall Street estimates by two cents a share. Earnings grew by 29.8% year over year.
Revenue climbed 7.4% year over year to $11.91 billion. That was slightly below the $11.98 projected by Wall Street.
I think you can tell what is going on at Schlumberger simply by taking a glance at those earnings and revenue growth rates. Revenue growth is indeed sluggish in the oil field. But Schlumberger’s margins are climbing thanks to efficiencies at the company and, especially, thanks to its years of investment in oil field technologies
For example, while oilfield services revenue climbed just 7.4% year over year in the fourth quarter, pretax operating income grew by 23% year over year.
Efficiency measures at Schlumberger have included faster maintenance, better transportation set ups, and increases in asset turns. The company reduced days sales outstanding—a measure of how long it takes to get paid after a sale—to 91 in the quarter from 96 in the first quarter of 2013. Days sales of inventory—a measure of how much inventory a company carries to support its sales activities—fell to 55 days from 57 days. That helped produce operating cash flow of $10 billion for Schlumberger in 2013, a record for the company
At the same time Schlumberger has increased the speed with which it rolls out new technology products. Read more
In lowering guidance Baker Hughes raised lots of questions about upcoming earnings in oil services sector
I’ve never owned shares of Baker Hughes (BHI) but I still follow the company closely. Its reports on drilling activity around the world are one of best ways to take the temperature of the global oil and gas production and services sectors.
The company’s January 10 announcement that it was lowering its guidance for the fourth quarter on declines in drilling activity in North America and Europe/Africa/Russia has certainly contributed to weakness in the oil services sector and in the shares of competitors such as Schlumberger (SLB.) With Schlumberger scheduled to report fourth quarter earnings on January 17 and with Baker Hughes scheduled for January 21, the question now is Has the lowered guidance from Baker Hughes de-risked the stocks in the sector or will there be enough disappointment in the actual reports to push the sector down farther?
What did Baker Hughes say on January 10? Read more
Thanks to the euro debt crisis and worries that a slowing China will reduce global demand for oil, I’ve finally got my buying target for Schlumberger (SLB). (How’s that for positive thinking? Lemons into lemonade, I hope.)
I wrote in an April 20 post http://jubakpicks.com/2012/04/23/very-solid-earnings-from-schlumberger-slb-but-im-still-waiting-for-my-price/that at a price of $64 to $65 the stock would be discounting the current weakness in North American oil and gas exploration and drilling. Yesterday, May 17, the stock closed at $64.75. Today, as of 2:30 New York time, shares are trading at $64.49. Seems like a good price to me. So I’m adding the stock to my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ today.
Back on April 20 Schlumberger reported earnings of 98 cents a share. Revenue climbed by 21.7% from the first quarter of 2011. International margins climbed to 19.1%, well above the 18% that Wall Street had expected. International margins are extremely important to Schlumberger. The most internationally oriented of all the oil service companies, Schlumberger gets two-thirds of its revenue from outside North America.
Which isn’t to say that North America isn’t important—33% of revenue is still a lot of revenue. And that’s where the problem lies for Schlumberger and all oil service companies at the moment. Read more
“A secular sideways market.”
That’s the best succinct description that I’ve heard so far of the stock market we’re in. It comes from Jack Ablin, chief investment officer at Harris Private Bank, at a panel that we shared at the recent Las Vegas MoneyShow.
At the same conference, Sam Stovall, the chief equity strategist for Standard & Poor’s Capital IQ Equity Research Department on another panel I had the privilege of sharing, peered into his crystal ball and offered that the gain on the S&P 500 would be about 4% in 2012. With lots of volatility—so much so that this year, Stovall told Bloomberg, that a 5% move should just be considered “noise.”
It’s reassuring to me these two smart market analysts see something like what I’ve called the “New Paranormal” market http://jubakpicks.com/tag/paranormal/ in my March 2 post. In my paradigm that market is characterized by lots of volatility but not much net gain—Ablin’s “sideways”—and achieving an annual return of 5%–Stovall’s 4% for 2012—should be considered a major achievement. This is still a paradigm under construction (and I’ll post a link for you to get a copy of its latest revision from the MoneyShow on May 16 on my http://jubakpicks.com/ site in the next few days.)
But watching the market action and listening to investor sentiment over the last few days has already suggested a new element to add to the model. It’s what I’m calling the Dangers of Deflationary Investor Sentiment. And I think it’s a major obstacle to achieving even the 4% to 5% returns that characterize a secular sideways market.
So let me start by telling you what this is, why it’s dangerous, and what to do about it. (Along with a few stock picks for execution during this current sell off.) Read more
Report softly but carry a big stick at the conference call. That’s not advice from Teddy Roosevelt but my description of the first quarter earnings report Friday morning, April 20, from Schlumberger (SLB) and the afternoon conference call.
The April 20 earnings report was very solid and suggested that the slowdown in drilling in the North American land market would draw to a close in the second half of 2012 as expected.
But it wasn’t until the conference call that it became how definitely the current oil industry market is playing to Schlumberger’s strengths.
Schlumberger reported earnings of 98 cents a share, matching the consensus estimate from Wall Street analysts. Revenue climbed 21.7% year to year to $10.61 billion, slightly ahead of the Wall Street consensus of $10.54 billion. The first quarter is a seasonally weak quarter because winter weather slows drilling and exploration so earnings and revenue both fell sequentially in the first quarter from the fourth quarter of 2011.
What was interesting to me about the conference call is how much more bullish Schlumberger sounded than Halliburton (HAL), the competitor that reported first quarter results on Monday, April 18. Read more