Schlumberger (SLB +2.27%) will release its quarterly report on Friday, capping an up-and-down quarter for the stock. With U.S. natural gas prices having risen somewhat from their lows last year and with oil prices remaining above $100 per barrel, Schlumberger earnings have the fundamental support in place to drive higher.
Yet in the oil-services industry, macroeconomic considerations can have a big impact on energy production and the activity that produces profits for its biggest players. Combine a large enough slowdown with high energy prices, and the risk of a disastrous drop in demand that could idle much of the work that Schlumberger does for its exploration and production company clients. 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.
Stats on Schlumberger
|
Analyst EPS Estimate |
$1.10 |
|
Change From Year-Ago EPS |
4.8% |
|
Revenue Estimate |
$11.11 billion |
|
Change From Year-Ago Revenue |
6.4% |
|
Earnings Beats in Past 4 Quarters |
4 |
Source: Yahoo! Finance.
How can Schlumberger earnings keep rising faster?
In recent months, analysts have pulled back ever so slightly on their earnings views about Schlumberger, cutting a penny per share from their June-quarter estimates and double that from their full-year consensus. The stock has been stuck in the doldrums as well, rising about 1.5% since mid-April.
In general, Schlumberger is benefiting from favorable conditions in the energy industry, which features a lot of new exploration and production in previously untapped areas of the world. In its report from last quarter, company executives highlighted growth in offshore drilling, especially in deepwater finds that have proven to be challenging but lucrative opportunities for massive production boosts. At the same time, Schlumberger has been able to keep its margins high even as producers have made every effort to become more efficient and cut services costs.
But Schlumberger is facing increased competitive pressure. General Electric's (GE 0.85%) purchase of Lufkin Industries, which it completed at the beginning of July, signaled the conglomerate's interest in bolstering its growing presence in energy to provide more drilling and exploration services, making GE a threat to Schlumberger's dominance in the industry.
Still, Schlumberger has plenty of ammunition of its own to bolster its growth. The company recently closed on its OneSubsea joint venture with Cameron International (CAM +0.00%) to take even greater advantage of opportunities in subsurface production. With Cameron's design, manufacturing, and installation experience, Schlumberger hopes to bolster its own expertise in completing subsea wells and providing reliable equipment and give clients an integrated solution for their sea-drilling needs.
In Schlumberger's earnings report, watch for signs of how the company's efforts in China are going. Having, created strategic relationships with oil companies within China to assess potential for shale-gas production, Schlumberger should be able to use its vast knowledge as a big drawing point in finding profitable plays in the emerging nation that could eventually send its earnings much higher.
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