Shlumberger Case Analysis
Schlumberger, the world’s largest oilfield services company, delivered solid quarterly results despite headwinds in several markets. The company reported 3Q14 adjusted EPS of $1.49 vs. consensus estimates of $1.46. The across the board beat came on strong execution and new technology. Sales grew 5% Q/Q and 9% Y/Y, while margins expanded ~60bps Q/Q and Y/Y. The company also expanded sales and margins Q/Q in all three product segments.
Ability To Deliver Strong Performance In A Slow Moving Environment
While acknowledging fears of near-term growth in oil supply and negative revisions in demand, SLB reiterated its positive outlook. The company believes growth concerns in certain markets can be offset while oil prices should stabilize at a higher
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It is a separate effort with a different implementation. It takes time to determine, initiate, roll-out and become part of the culture. Although the company has already shown improvement in the running of the business, this improvement will continue and likely accelerate in the next 2-3 years. The strategy that the company spelled out at its analyst day is on track. SLB has recently concluded piloting a wireline centralized asset management facility, lowering downhole tool fleet over 30%. The company has extended regional distribution centers in South America, reducing spares on hand 10%. SLB also has revised job execution processes in wireline, with 30% reduction in customer’s non-productive …show more content…
The company has started with very strong margins and should only see them accelerate over the next 2-3 years, a realistic time frame for these transformational efforts to be optimized. North American margins came in about 19.4% in the third quarter but there is a great deal of upside as onshore unconventional completions see pricing improvement over the next few years. On the other hand, the company reported record post financial crisis international margins of 24.6%. The integration of technologies and the broader management of project scopes give SLB and its immediate peers efficiencies that matter more to oil companies today than just lower pricing.
Schlumberger also has a different macro outlook than Wall Street. The company sees oil demand nearly intact as IEA revised down actual 2013 demand along with 2014-15, implying a broadly unchanged incremental 1.1mbpd in 2015. On supply side, Schlumberger points to OPEC’s sustainable spare capacity, down 800,000bpd Y/Y and weakness in non-OPEC non-North American capacity. SLB expects incremental spending to meet demand, with the oil price dictating where it will take place. Given its wide exposure, SLB stands to
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