Schlumberger's Earnings: An Early Look

2013 is here, and earnings season has already started ramping up. The key to making smart investment decisions with stocks releasing their quarterly reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Let's turn to Schlumberger (SLB -2.14%). The oil services giant has benefited from the increased activity in oil and gas exploration worldwide, although volatile energy prices have called into question whether the global economic slowdown will continue to support further growth in the industry. Let's take an early look at what's been happening with Schlumberger over the past quarter and what we're likely to see in its quarterly report Friday morning.

Stats on Schlumberger

Source: Yahoo Finance.

Will Schlumberger drill up good results?
Analysts have steadily reduced their consensus earnings estimates on Schlumberger over the past three months, with an $0.08 per share drop in earnings per share projections. The stock has largely been flat over that time frame since mid-October, with shares oscillating upward and downward roughly in line with oil and gas prices.

The slowdown in Schlumberger's earnings shouldn't come as a surprise to attentive investors, as the company preannounced subpar results due to weaker than expected business activity in Europe and Africa as well as from its onshore operations in North America. Schlumberger projected a $0.05-$0.07 per share impact, and subsequent news from Baker Hughes (BHI) confirmed the idea that the weakness pervades the entire market rather than being company-specific.

One big key to Schlumberger's success has been building partnerships early in the production process. With a deal with Petroleo Brasileiro (PBR 5.71%) to study the potential development of pre-salt reservoirs, Schlumberger got in on the ground floor of what has turned out to be huge reserves off the coast of Brazil. More recently, Schlumberger and Cameron International (CAM.DL) formed a joint venture to build better systems for evaluating and exploiting the subsea energy market.

But the true potential could be yet to come. With calls for the U.S. to eclipse Saudi Arabia as the largest oil producer by 2017, the need for energy services is likely only to increase in the years to come. Although Halliburton (HAL 1.11%) has traditionally had a somewhat better grip on the domestic oilfield services, Schlumberger nevertheless will continue to have a leadership role both in the U.S. and around the world.

You should look for Schlumberger's results to reflect short-term uncertainty in the oil and gas markets. But more importantly, key in on what the company has to say about its future prospects, which will give you more of what you need to know to decide whether Schlumberger is a buy.

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