The largest oilfield services company, Schlumberger (SLB, Financial), is about to release its first quarter earnings for the fiscal year 2015 on April 16, and analysts and investors across the globe are not very optimistic about the expected numbers. In fact, this quarter has been a challenging one for the energy sector companies as a whole and as Schlumberger is the first among the energy majors reporting earnings this week, all eyes are waiting for its actual top and bottom line figures to be out for the quarter. Let’s quickly take a sneak peek into what the analysts are expecting from the first quarter of the oilfield services major in the current prevailing scenario of low crude oil prices.
Looking into the past quarter
The oilfield services major has a broad product portfolio and its revenue growth is not entirely dependent on the U.S. as it has revenue stream being generated in various other international locations. Hence, the effect of the cutbacks that were happening in the U.S. did not affect the financial stability of the company that posted quarterly revenue that rose 6% year over year in the fourth quarter of the fiscal year 2014 to $12.64 billion. Also adjusted operating income improved 9% year over year to $1.94 billion during the fourth quarter of the previous fiscal year.
The dismal market scenario prevails
Presently the Brent crude oil prices have fallen to levels such as $57 per barrel, as global oil demand remains weak and the supply from U.S. shale oil fields are almost peaking out. Such a scenario does not bode well for the oil and gas industry and oil companies are finding their cash flows coming under intense pressure. Hence, many are being forced to reduce their capital spending budget in the fiscal year 2015 as their margins are coming under abnormal pressure.
The same holds true for the oilfield services major, Schlumberger, as its management has already announced the initiation of cost-saving initiatives such as reduction of workforce and constricted capital spending budget. In fact, the company expects capital expenditure of around $3 billion in 2015 from a $4 billion capex spending done in the past year. There would be pressure on the margins as well for the first quarter, but analysts are hoping that the adjustment in the cost structure might aid in pulling back the margins of the company by the end of the fiscal year.
Analysts’ opinions are based on several existing facts
The Street analysts are expecting earnings per share to be about $0.92 a share on revenue of $10.44 billion for the quarter, both showing a year-over-year decline of -24% and -7% , respectively. In fact, analysts are of the opinion that the entire energy sector could expect to see the earnings decline 64% and revenue drop by 36% in the first quarter of 2015. So far, the expectations from Schlumberger do seem to be decent when compared to the energy sector dip as a whole.
However, the fortunes of the company are closely tied to the persistent fall in crude oil prices and the strengthening dollar that has furthermore led to the slump in oil prices by making oil dearer to importers.
Going forward, Schlumberger’s optimism on long-term growth is supported by its cost –containment measures –Â and it is being speculated whether the company would cut its capex further from $3 billion for the fiscal year 2015 in its guidance that would be disclosed tomorrow during the earnings call.
But the focus on international exploration and lower dependency on North America will aid in driving its top-line performance to a considerable extent. Also, strong leverage to the deepwater segment might aid to pull the revenue stream amid the presence of major headwinds, in the long run. Analysts are, however, not too confident of Schlumberger posting an extraordinary earnings report this time, as they are not impressed with the company’s oilfield activities during the quarter.
Last word
Well, the actual results would state it all. Everyone seems to be waiting for the figures to be out that could aid in assessing the company’s performance better in the presence of challenging forces prevailing in the oil industry as a whole. Let’s stay tuned.
