Schlumberger’s profitability within different geographies varies
We discussed Schlumberger’s (SLB) revenue growth and revenue split across its various geographies in the previous section. In this article we’ll look at its operating income and profit margin in these regions.
In 4Q14, earnings before tax (or EBT) from Schlumberger’s international operations increased 3.8% to $1.98 billion from $1.91 billion in 4Q13. In comparison, North American earnings increased at a much higher rate of 18.6% during the same period.
Schlumberger (SLB) is a component of the VanEck Vectors Oil Services ETF (OIH) and the Energy Select Sector SPDR (XLE). SLB is currently 19.7% of OIH’s total holding. Other companies in this industry that are components of OIH include Cameron International (CAM) and Weatherford International (WFT).
Revenues and profits fell in Europe, CIS, and Africa regions
Schlumberger’s Europe/CIS/Africa operations were the hardest hit in 4Q14. Revenues from this region decreased 5%, while EBT margin declined ~6% in 4Q14 over 4Q13.
Performance deteriorated here primarily on account of weakness in Russian currency and seasonal activity declines in Russia. Schlumberger’s revenue also fell due to weak demand in Angola, Norway, and the United Kingdom as a result of the fall in rig count.
Middle East and Asia
In Asia and the Middle East, revenues increased 5.8% year-over-year to $3.09 billion in 4Q14 from $2.92 billion in 4Q13 due to robust product and software sales and higher drilling activity in Saudi Arabia, Bahrain, Kuwait, and the United Arab Emirates.
EBT increased 14.5% to $877 million, and EBT margin improved to 28.3% in 4Q14 from 26.2% in 4Q13.
In 4Q14, SLB’s revenues from its Latin American operations increased marginally by 2.5% to $2.05 billion from $2.0 billion recorded in 4Q13. This increase was led by increased activity in Venezuela and Colombia, and was partially offset by lower activity in Mexico due to budget constraints and weather. Pre-tax operating margin remained steady at ~21%.
Read the next section to find out why Schlumberger (SLB) is reducing its 2015 capex and what its outlook on the world economy is.