uploads///Revenue estimates

Schlumberger: 2Q15 Revenue Expectations Are Bearish

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Schlumberger’s quarterly adjusted revenues

We discussed Schlumberger’s (SLB) market performance in Part 1 of this series. In this article, we’ll compare SLB’s revenue performance against analyst estimates over the last few quarters.

For Schlumberger in 2Q15, analyst consensus revenue estimate is $9.14 billion. This is 11% less than the company’s 1Q15 adjusted revenues. Schlumberger’s revenue declined in 1Q15, after having risen or been steady for the eight quarters before that.

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Between 1Q13 and 4Q14, Schlumberger’s adjusted revenues increased by 20%. Its impressive run was, however, cut short by the crude oil price slump and the resulting upstream capex spending cut. Upstream companies also pushed for lower rates, or renegotiated contracts with the OFS (oilfield service) companies, which affected Schlumberger’s revenues.

While Schlumberger can expect a 11% sequential revenue fall in 2Q15, Halliburton (HAL) is looking at a 17% quarter-over-quarter fall in 2Q15 revenue. During the same period, analysts expect Cameron International’s (CAM) revenue will fall by 5%, and Weatherford International’s (WFT) 2Q15 revenues are expected to fall by 15%.

Schlumberger makes up 7.5% of the Energy Select Sector SPDR Fund (XLE) and 0.59% of the SPDR S&P 500 ETF Trust (SPY).

Adjusted versus estimates

As noted in the graph above, Schlumberger’s adjusted revenues have fallen short of estimates in most past quarters. On average, adjusted revenues have underperformed consensus revenues by ~10% in the past nine quarters. Meanwhile, adjusted revenues exceeded consensus revenues by 4.7% in 1Q15.

Rigs show signs of recovery

The US rig count decline has started to taper off. But on June 26, it was still 18% lower than it was at the end of March. Crude oil prices remain weak compared to June last year, but they’ve risen by 18% over the average in 1Q15. If both indicators improve, Schlumberger’s revenues should start rising again.

Higher upstream activity will also help midstream MLPs (master limited partnerships) incluidng ONEOK Partners (OKS), Magellan Midstream Partners (MMP), and MPLX (MPLX).

We’ll discuss Schlumberger’s earnings in the next part of this series.

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