When an entire industry hits the skids like the oil and gas market has over the past year and a half, a little good news can give a stock a big boost. That wasn't the case when Schlumberger (NYSE:SLB) posted an earnings beat this past quarter, though, because the bad news that came with it was that much harder to swallow.

Let's do a quick rundown of the company's earnings, and look at why despite beating Wall Street's expectations ever so slightly, it wasn't enough to keep the stock from plunging following the news.

Getting good at staying afloat
There have been several signs that oil services' earnings would be less than stellar this quarter. Rig counts around the world have declined, and many companies have shifted away from their exploration work to more of the completion and production work. So, as expected, Schlumberger's earnings declined 6% sequentially and 33% year over year to $8.47 billion, which was also a bit shy of Wall Street's expectation of $8.56 billion. 

One thing that Schlumberger has been able to do well during this downturn, though, is to cut costs to keep its profit margins somewhat intact. Earnings per share came in at $0.78, a 48% decline from last year, but also a penny better than expectations. The biggest declines in profitability have been in the Americas, as rig counts in the U.S. and in Latin America have declined the sharpest and a glut of service crews is taking cheaper and cheaper service contracts to keep crews working.

Data source: Schlumberger earnings release.

Despite these major declines, the company has still been able to produce strong margins. This past quarter's operational profit margin was down to 18%, which, compared to previous quarters, looks pretty weak. Although if you were to ask one of Schlumberger's peers, they would probably be doing a touchdown dance if they were able to achieve profit margins that high when they report earnings next week. 

CompanyOperational Margin (Q2 2015)Operational Margin (Q2 2014)Change
Halliburton (NYSE:HAL) 4.2% 14.8% -1060 basis points
Baker Hughes (NYSE:BHI) 2% 13% -1100 basis points
Weatherford International (NYSE:WFT)  4.9% 14% -910 basis points

Data source: Company Q2 2015 earnings releases.

You thought 2015 was bad?
Even though Schlumberger was able to maintain a respectable level of profitability this past quarter and has shown the ability to handle the downturn rather well, the big reason that shares didn't respond positively is because of some of the things that management said about the coming year. 

The one positive is that exploration and production spending cuts have started to catch up with actual production and the oversupply of crude is starting to clear ever so slowly. We have seen some setbacks from high inventory levels of crude oil and some incremental production increases from OPEC, but, on the whole, demand is starting to slowly catch up. That being said, Schlumberger CEO Paal Kibsgaard explained why the company was not that optimistic about a fast recovery in 2016:

[T]he market outlook for the coming quarters looks increasingly challenging with activity expected to be reduced further, as lack of available cash flow exhausts capital spending for a number of our customers, leading them to take a conservative view on 2016 E&P spending in spite of any gradual improvement in oil prices...In light of conservative customer budgets for next year, we are therefore entering another period during which we will continually adjust resources in line with activity, as the recovery now appears to be delayed.

This suggests that the company could very well cut its workforce even more than the 20,000 people it has let go thus far in order to maintain those profit margins throughout the rest of next year. 

This may not be as big of an issue for Schlumberger since it still has stronger margins, but that message could be a really bad omen for Halliburton and Baker Hughes. Their higher exposure to the North American market and lower margins suggest that the next few quarters could be particularly painful. We'll get a little more clarity on this when both companies as well as Weatherford report earnings next week. 

What a Fool believes
You have to give some credit to Schlumberger's management here. It has done a very commendable job of managing the decline in oil activity to make for a soft landing for investors. It may be hard to stomach another year of less-than-robust results, but if Schlumberger has shown anything in its last few earnings report, it is that the company seems to be in a much better position to handle it compared to others in the space.

Based on this, and looking at the profit margins of its main competitors, Halliburton and Baker Hughes, it's worth giving management the benefit of the doubt here and not be too hasty by selling off shares of Schlumberger anytime soon.