Schlumberger’s 2Q15 Earnings Reflect Industry Slowdown
US drilling headwinds increase even more
We will now discuss Schlumberger’s (SLB) outlook for the rest of 2015. Schlumberger expects drilling activity headwinds to continue in 2015. Lower exploration and production (or E&P) activity and declining rig count should also hurt other drilling equipment and service providers like Dresser-Rand Group (DRC), Weatherford International (WFT), and Cameron International (CAM) in 2Q15. SLB is 0.57% of the SPDR S&P 500 ETF (SPY).
Schlumberger’s outlook for the rest of 2015
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The North American rig count appears to be bottoming out.
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North American E&P activity may decrease by 35% compared to 2014.
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However, land drilling and completion activity may start rebounding in 2H15.
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The company estimates a 15% reduction in international E&P spending in 2015.
Free cash flows and share buyback program
In 1H15, Schlumberger generated $2.44 billion in free cash flows (or FCF). This represents a 29% year-over-year increase. In 2Q15 alone, SLB generated $1.49 billion FCF. Higher FCF in 1H15 over 1H14 was brought about primarily by lower capital expenditure. Free cash flow is defined as cash flows from operations less capital expenditures. Free cash flows indicate a company’s ability to generate cash for distribution to shareholders.
Schlumberger continued its stock buyback program, repurchasing $520 million of stock during 2Q15. Starting July 2013, Schlumberger has made plans to complete a $10 billion buyback program.
Shareholder returns fall
In 2Q15, SLB returned $1.15 billion in cash to the shareholders in the form of dividend and share buybacks. This was 6% lower than what its shareholders received in dividends and share repurchase in 1Q15. On July 16, Schlumberger announced a quarterly dividend of a $0.50 per share. Assuming distribution remains the same, this amounts to $2.00 a share annualized, and a yield of 2.4% at the current share price.
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