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Why Schlumberger saw weak 2014 earnings despite higher revenues

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2014 revenues increased, but EPS fell

We have been discussing Schlumberger’s (SLB) earnings in this series. We analyzed its 4Q14 financial performance in the previous sections. In this article, we’ll look into what drove its weak 2014 earnings.

For the year ended December 31, 2014, Schlumberger’s (SLB) revenues went up by 7.3% to $48.58 billion versus $45.26 billion recorded in 2013.

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North America and Asia led the charge

Geography-wise, North America led the company with 16.2% revenue growth in 2014 over 2013, closely followed by the Middle East and Asia with 10.3% revenue growth. However, Latin America fell, registering a 0.7% decline in 2014 over the past year.

Operating income growth by product group

Schlumberger’s Reservoir Characterization segment, accounting for ~25% of the company’s 2014 revenues, posted a 1% decline in operating income in 2014 over 2013. In contrast, Schlumberger’s Drilling and Production segments recorded 18% and 23% growth in operating income, respectively. Most of the improvement in operating margin took place at Schlumberger’s international operations, which expanded by 1.68%.

2014 net income tumbles

Despite improvement at the operating income level, Schlumberger’s (SLB) bottom line fell in 2014. Its 2014 net income went down by ~1.3% from $5.13 billion to $5.07 billion. Earnings per share (or EPS) decreased to $4.16 in 2014 from $5.05 in 2013. This was mostly on account of the various impairment charges and devaluation charges the company recorded in 4Q14 following the crude oil price slump. Read Part 3 of this series to learn about these charges in detail.

Crude oil price fall affected other oilfield service and equipment companies in 2014 like Baker Hughes (BHI), Halliburton (HAL), and Weatherford International (WFT). These companies are components of the VanEck Vectors Oil Services ETF (OIH).

Did all of SLB’s product groups and geographic segments move during its latest quarter? Read the next section to find out.

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