Oil & Gas equipment services company Schlumberger Ltd. (SLB) will be expecting pricing momentum in wireline and drilling-related product lines both on land and offshore to help boost its earnings for the fourth quarter. This will also drive the company's earnings either to top or miss analysts' expectations. In the last four quarters, the company's earnings either topped or missed street predictions.
Schlumberger's year-over-year margin is falling, but sequentially it is showing improvement. The company will announce their fourth quarter earnings results on January 20.
Expectations
Wall Street analysts are expecting the Houston, Texas-based company to earn $1.09 per share on revenues of $10.79 billion for the fourth quarter. This represents earnings upside of 28.2 percent on revenue growth of 19 percent.
Street analysts have reduced their earnings target to $1.09 a share from $1.10 a share seven days ago, $1.11 a share 30 days back and $1.19 a share 90 days back.
After the announcement of third quarter results, FBR Capital Markets had reduced its EPS estimate on Schlumberger for the fourth quarter to $1.12 from $1.18. The brokerage also reduced its 2011 EPS target to $3.68 from $3.75.
Similarly, Barclays has cut its fourth quarter EPS estimate on Schlumberger to $1.08 from $1.10 and 2011 EPS target to $3.64 from $3.66.
As a result, both the brokerages have reduced their EPS estimate for 2012 too. While Barclays reduced its EPS target on the company to $4.90 from $5.00, FBR Capital Market has cut its EPS estimate to $4.75 from $5.10. Barclays had also reduced its EPS projection for the company to $1.01 from $1.03 for the first quarter of 2012.
Third Quarter Results
Schlumberger reported net income of $1.30 billion or 96 cents a share, down from $1.73 billion or $1.38 per share in the year-ago quarter. Excluding last year gain and current year charges, the company would have earned $1.32 billion, up 51 percent from $875 million and earnings surged 40 percent to 98 cents a share from 70 cents a share in the year earlier quarter.
Revenues jumped 49.3 percent to $10.23 billion from $6.85 billion in the previous year quarter. Street consensus for the earnings was $1.01 per share on revenues of $10.19 billion for the third quarter.
Earnings History
In the past four quarters, Schlumberger's earnings topped analysts' expectations during second quarter of 2011 and fourth quarter of 2010. The company's earnings fell shy of estimation in the first and third quarters. The company earned 98 cents, 87 cents, 71 cents and 85 cents a share in the third, second, first and last year's fourth quarter.
On the revenue front, the company generated revenues of $10.23 billion, $9.62 billion, $8.72 billion and $9.07 billion in the third, second, first and previous year's fourth quarter.
Versus Peers
For the trailing twelve-month period, Schlumberger's gross margin was 21.29 percent compared to industry average of 28.55 percent, Weatherford International Ltd.'s (WFT) 26.28 percent and Baker Hughs' (BHI) 22.79 percent. But, its operating margin of 16.57 percent is better than its rival Weatherford's 9.96 percent, Baker Hughes' 14.27 percent and industry average of 11.22 percent. However, Schlumberger's operating margin is weaker than Halliburton's (HAL) 18.66 percent. Significantly, the company's profit margin of 12.3 percent is stronger than its rivals Weatherford's 2.24 percent, Baker Hughes' 9.33 percent and Halliburton's 11.07 percent.
iStock Punch
Schlumberger's gross margin compared to its rivals and industry average is poor, though its operating and profit margins are better. The company has to continue its efforts to improve its gross margin; otherwise it could again miss Street earnings projections as it did in third quarter.