What Does Schlumberger’s Management Think before 1Q16 Earnings?



What does Schlumberger’s CEO think?

Schlumberger (SLB) continued to restructure its workforce by reducing headcount in 4Q15. In 2015, it spent approximately $500 million on technology acquisitions. Schlumberger’s management thinks that these steps can increase efficiency and result in cost savings going forward. Regarding this, Paal Kibsgaard, Schlumberger’s chairman and chief executive officer, commented in the 4Q15 press release, “Throughout the year we took a number of actions to streamline and resize our organization as we continued to navigate the downturn.”

Forum Energy Technologies (FET), SLB’s smaller market cap peer, was focusing on revenues and operating margin in 1Q16. In its 4Q15 conference call, FET’s management mentioned that it thought the company’s revenues and operating margin would deteriorate in 1Q16.

SLB makes up 0.57% of the iShares Core S&P 500 ETF (IVV). For investors looking for exposure to the energy sector, energy makes up 6.8% of IVV.

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Schlumberger completes Cameron International merger

On April 1, Schlumberger completed the pending merger with Cameron International. Schlumberger estimates that the combined company will increase shareholder value through operating cost reductions, supply chain streamlining, and manufacturing process improvements. Synergies arising from cost efficiency are also expected to add $300 million to pretax income in the first year of the transaction and another $600 million in the second year. These are expected to boost SLB’s prices going forward. To read about the merger in detail, read Market Realist’s series titled Wedding Season in Energy OFS: SLB’s Proposed Acquisition of CAM.

Recent management guidance

On April 12, Schlumberger reaffirmed its 1Q16 revenue guidance of $6.5 billion, which is 16% lower than revenue in 4Q15. The company also announced that it will reduce its activity in Venezuela.

In the next article in this series, we’ll discuss Wall Street analysts’ recommendations for SLB.


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