Monday, October 19, 2020

Schlumberger Shares Fall as Investors Drill into Q3

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What’s happening: Shares of Schlumberger fell sharply on Friday despite the world’s largest oil services company reporting upbeat earnings for the third quarter.

What happened: Schlumberger kicked off the earnings season for US oil service providers on a positive note. Oil companies have been under pressure with fresh lockdowns in some countries due to rising infections threatening a rebound in energy demand.

Despite profits coming in higher than expectations, Schlumberger’s results for the third quarter was the worst in the past 13 years.

How were the results: The oil services company reported a net loss for the third straight quarter, with a decline in revenues.

  • Revenues contracted 38% to $5.26 billion, missing the consensus view of $5.40 billion.
  • Net loss stood at $82 million, or 6 cents per share.
  • Excluding non-recurring items, earnings slipped to 16 cents per share, from 43 cents per share in the same quarter last year. The figure exceeded expectations of 12 cents per share.

Why it matters: Crude prices have remained depressed as the world crawls out of the coronavirus crisis with several setbacks. With revenues being hit, Schlumberger has been focusing on reducing costs. Faced with a massive slowdown in global oil production, the company announced plans in July to cut a quarter of its staff, representing around 21,000 jobs.

Schlumberger’s North American business suffered for more than the international markets. Revenues in the region tumbled to $1.16 billion last quarter, from $2.85 billion in the year-ago quarter. Faced by this, management decided to divest the North American pressure pumping business, which was once a major growth driver for the company. Schlumberger announced plans to sell a majority stake in the business to Liberty oil-field services.

The company’s production revenue shrunk 43% to $1.80 billion, although this exceeded the consensus estimate of $1.71 billion. Drilling revenue missed expectations, falling 38% to $1.52 billion.

“International activity is steady following budgets resets completed in the third quarter,” CEO Olivier Le Peuch said, trying to calm investor nerves. “In North America, the conditions are set for continued momentum, with improving DUC well completion activity in US land and a modest drilling resumption in the US and Canada.”

How shares responded: Schlumberger’s shares plummeted 8.8% to close at $14.97, recording its lowest settlement price since April 21. The company recorded its biggest single-day post-earnings fall since when it reported its Q3 results on October 19, 2007.

What to watch: Investors will look for signs of strength in the company’s international business. Markets will also remain abreast of crude prices, covid-19 figures and related lockdown moves and updates on the US stimulus package.

The Markets Today

     

European stocks will be in focus today, ahead of the Eurozone’s construction output report and speeches by ECB’s (European Central Bank) members.

Context: European stocks recovered on Friday, supported by strong results from various companies. However, covid-19 cases continued to rise in the region, threatening the gains in the equity market.

Details: Investors remained concerned about the rising number of coronavirus infections around the world, especially in Europe, which has forced many countries to impose restrictions again. London announced a ban on household gatherings, while night-time curfews have been declared in various French cities. Germany also tightened its control on gatherings.

There was some positive news related to covid-19, with Pfizer saying that it expects to file for Emergency Use Authorization next month, given the efficacy results from its covid-19 vaccine candidate.

Investors also digested news of UK Prime Minister Boris Johnson saying that the country should remain prepared for a no-deal Brexit.

On economic data front, the European Union reported a rise in passenger car registrations for the first time in the year, with numbers up 3.1% in September.

Volvo reported upbeat earnings for the third quarter, which helped its stock record gains of 3% on Friday. Shares of LVMH Moet Hennessy Louis Vuitton SE climbed more than 7% after the company reported healthy revenue growth for the third quarter.

The Stoxx Europe 600 index gained 1.3% to close at 367.48 on Friday, following a 2% decline in the previous session, its biggest single-day decline since September 21. The index shed around 8% last week.

The German DAX 30 gained 1.6%, while the French CAC 40 and London’s FTSE 100 moved higher by 2% and 1.5%, respectively.

What to watch: Markets await construction output data from the Eurozone and speeches from ECB President Christine Lagarde and chief economist Philip Lane. Construction output in the Eurozone had contracted by 3.8% in July, after a 4.8% decline in June.

Other Markets: US indices closed mostly higher on Friday, with the Dow Jones index and S&P 500 up 0.39% and 0.01%, respectively. The Nasdaq 100 bucked the trend, slipping 0.36%.

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What else to watch today

     

Spain’s Balance of Trade, Canada’s Wholesale Sales and Bank of Canada’s Business Outlook Survey as well as the US NAHB housing market index and Fed Chairman Jerome Powell’s speech.