Schlumberger Ltd. is beginning to reap some benefits from more than 20,000 job cuts announced this year to weather the oil-price crash.
The world’s largest oilfield services provider earned 88 cents a share in the second quarter, beating the 79-cent average of 37 estimates compiled by Bloomberg. Profit margins at its international business, which generates about three-quarters of sales, climbed to 24.5 percent from 24 percent a year earlier.
Schlumberger, which declared that the North American rig count has hit bottom and forecast slow growth on land the rest of this year, announced that it’s done with large workforce reductions.
“The third quarter could potentially represent the bottom of this cycle in terms of earnings per share,” Chief Executive Officer Paal Kibsgaard told analysts and investors Friday on the call. He said the 77-cent average estimate from analysts for third-quarter earnings, excluding certain items, is a “realistic” number.
The company is the first among the large service providers to report better-than-expected earnings from the second quarter. Explorers are planning to slash more than $100 billion of spending this year after Brent, the global crude benchmark, fell by half from a high in June 2014.
“The whole services industry was the first to have workforce reductions,” Rob Desai, an analyst at Edward Jones in St. Louis, who rates the shares a buy and owns none, said in a phone interview. “They tried to get ahead of this, knowing what a decline can do to their business. It seems like they stepped ahead of it and got most of the large layoffs out of the way.”
Service providers and explorers have announced more than 100,000 job cuts since oil prices began tumbling last year. Houston- and Paris-based Schlumberger announced it was firing 9,000 people in January and another 11,000 three months later.
Shares fell 0.2 percent to $83.76 at 10:26 a.m. in New York.
The pending deal between Halliburton Co. and Baker Hughes Inc., the world’s second- and third-largest oil service providers, is creating uncertainty among international customers and may be resulting in a smaller number of work being offered up for bidding, Kibsgaard said. The two companies are looking to sell assets to gain antitrust approval from regulators around the world.
“Firstly, is the transaction going to go through,” Kibsgaard said. “If it goes through, then it’s from three to two players. If it doesn’t go through, then obviously that warrants a different approach to how they potentially would like to award.”
Schlumberger generates the most international work among the world’s four largest oilfield services companies. All three of its regions outside the U.S. and Canada increased margins from the first quarter.
Investors will be questioning how much the international margins will fall in coming quarters as customers continue pressing for lower service prices, Robin Shoemaker, an analyst at KeyBanc Capital Markets in New York, who rates the shares the equivalent of a hold and owns none, said in a phone interview.
“The pricing pressures internationally are very powerful,” Shoemaker said. “Customers are asking for discounts in every market.”
Second-quarter net income declined to $1.12 billion from $1.8 billion, or $1.37, a year earlier. Total sales dropped 25 percent to $9.01 billion.
North American customer spending is expected to fall by more than 35 percent, while international customers will cut more than 15 percent from their budgets, Kibsgaard said.
Schlumberger provides services including drilling wells, hydraulic fracturing and mapping underground oil pockets for energy producers. Its two largest competitors, Halliburton and Baker Hughes, are scheduled to report earnings next week.