Schlumberger Limited. (NYSE:SLB): The largest oilfield services provider in the world is expected to report first quarter earnings today before the market opens, setting the tone for upcoming quarterly results of its peers. EPS and revenue expectations for the quarter are set at $0.25 and $6.98 billion, respectively.
SLB’s top-line directly reflects the impact of drilling and capacity expansion activities in the energy sector as evidenced by a huge slump in its revenue since 2015, when crashing oil prices forced producers to cut capital expenditures drastically.
With crude sticking around $50/barrel-mark and an improving outlook for the commodity going forward, there has been a significant surge in North America’s (NAM) production activity as evidenced by quickly rising rig counts of late.
While being a globally diversified company had placed SLB in a better position than most of its US-listed peers when oil production activity dried up in NAM in the wake of an oil-price-crash, the same can act against it in this quarter as a lion’s share of its revenue (nearly 75%) comes from outside NAM.
On that front, while the recent consensus between OPEC and Russia to cut production may not have that much impact on Q1 results, it can adversely affect SLB’s outlook, a more powerful driver of the stock prices than earnings.
Thus, as investors await first-quarter results, the outlook provided by SLB would hold greater importance in deciding their bias on the stock; however, only if it provides any — SLB didn’t offer any guidance in the previous quarter.
Haliburton Company (NYSE:HAL): Second only to SLB, another Texas-based oilfield services provider, HAL, is expected to report this Monday (04/24) with first quarterly EPS and revenue expectations pegged at $0.03 and $4.30 billion, respectively. The chances of HAL beating the top-line are higher than SLB due to a substantially bigger contribution (more than 40%) from the NAM region in its revenue.
Interestingly, HAL shares are up nearly 25% over the past year, compared to SLB shares’ nearly flat performance. Investors would take a cue from SLB’s revenue figures in NAM on how HAL’s quarter may have shaped up. Although HAL has a history of beating earnings estimates, given the estimates are so low for Q1 EPS, the focus will be on the size of the beat in case it exceeds earnings this time, apart from the outlook HAL provides for the rest of the year.
Investors would also weigh HAL results against the company’s Q1 guidance for margin growth in the NAM region of 40%–45% and analysts’ expectations of a strong double digit revenue growth. However, overall revenue is expected to come lower than the year-ago-quarter on account of the challenges faced internationally.
Looking for more companies with performance tied to oil production activity, check out the full list: Oil Production Play