A tale of 2 high flyers, Apple and Schlumberger

The stock market looks ever forward. As Legg Mason fund manager Bill Miller sometimes explains, your accuracy of projecting a company’s profits over the next year won’t help predict the company’s stock price one year hence. The stock price then will be based, instead, on what the market’s expecting for yet another year forward. In other words, as soon as a company reports quarterly earnings those earnings become irrelevant to the company’s stock price except as they shed light on future results. You can see just how right Miller is in the divergent reaction to strong earnings reports from oil services leader Schlumberger (Symbol: SLB) and iPod maker Apple (AAPL).

Schlumberger reported record third-quarter revenue and profit. And the results, $5.9 billion in revenue and $1.09 a share in profit, exceeded the average of Wall Street analysts’ forecasts. So the stock, up 75% on the year, zoomed further upwards? Not exactly. Schlumberger tumbled 11% on Friday and lost another 4% today.

Seems that within those third quarter results was some troubling information about the future. Revenue, profits and net margins in North America all dropped unexpectedly. When asked about the shortfall, CEO Andrew Gould had nothing reassuring to say. Even though some of the problem was caused by hurricane evacuations that won’t likely recur in the fourth quarter, upcoming results could be even worse, he said. Asked if 2008 earnings before interest and taxes would increase from 2007, Gould said he wasn’t sure. Citigroup’s Geoff Kieburtz followed up asking: “So a decline is a possibility?” Gould replied: “It’s not excluded, no.”

Meanwhile, Apple, previously up 105% this year, reported its results that also beat analysts expectations. Revenue hit $6.2 billion and net income per share came in at $1.01. But, more importantly, Apple’s forward view was all rosy. Unlike the uncertainty and double negatives at Schlumberger, Apple raised its revenue and net income per share expectations for the fourth quarter. Apple’s up 6% in after-hours trading.

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