Schlumberger Limited (SLB) 2024 Q2 Earnings Call Summary
July 19, 2024 Schlumberger Limited (SLB)
Market Cap | 0.21T |
---|---|
Beta | |
P/E | 39.75452774136047 |
EPS | 12.247158441111395 |
Dividend | 0 |
Dividend Yield | 0.00% |
Optimistic Highlights
- Strong Second Quarter Performance: SLB reported a 5% sequential revenue increase, 11% adjusted EBITDA growth, 142 basis points EBITDA margin expansion, and $776 million of free cash flow.
- International Market Growth: More than half of SLB's international geo units posted the highest revenue quarter of the cycle, with significant growth in the Middle East and Asia.
- Offshore Market Strength: Notable growth in Europe, Africa, and Latin America, especially in deepwater basins like Brazil, West Africa, and Norway.
- Digital & Integration Growth: Digital business reached a new quarterly high, contributing to visible sequential margin expansion.
- Full Year Outlook: SLB expects full-year adjusted EBITDA growth in the range of 14% to 15% and margins at or above 25%.
Pessimistic Highlights
- North America Market Constraints: Revenue growth was partially offset by lower drilling in U.S. land due to weaker gas prices, capital discipline, and ongoing market consolidation.
- Cost Efficiency Charges: SLB recorded charges related to cost efficiency actions, including adjusting resources due to lower activity levels in North America and optimizing support structures.
Company Outlook
- Third Quarter Expectations: Sequential revenue growth in the low single-digits with further margin expansion.
- Continued Growth and Margin Expansion: SLB anticipates strong revenue growth, margin expansion, and robust cash flows in the second half of 2024, reinforcing its commitment to shareholder returns in 2025.
Q & A Highlights
Q: Can you confirm the slight EBITDA guide raise and discuss the outlook for 2025? (James West, Evercore ISI)
A: Yes, the EBITDA growth year-on-year is now expected to be in the range of 14% to 15%, indicating a solid outlook and a strong base for 2025. (Olivier Le Peuch)
Q: Could you highlight what you're seeing in the Middle East right now? (James West, Evercore ISI)
A: The Middle East is experiencing broad growth across oil capacity expansion and gas development projects, with significant activity increases in countries like Saudi Arabia, UAE, Kuwait, Iraq, and Libya. (Olivier Le Peuch)
Q: How do you view the global natural gas markets and SLB's mix of business shifting towards natural gas? (David Anderson, Barclays)
A: SLB sees resilience in oil capacity expansion, deepwater oil developments, and gas projects, with a diversified exposure to both oil and gas markets, particularly in the Middle East. (Olivier Le Peuch)
Q: Can you discuss the order book for OneSubsea and the overall offshore portfolio? (David Anderson, Barclays)
A: The deepwater market has multiple growth legs, with strong portfolios of projects underway, ongoing FIDs, and exploration activity across various regions, supporting SLB's positive outlook on deepwater and offshore markets. (Olivier Le Peuch)
Q: How do you think about segmenting the portfolio next year with ChampionX coming in? (Scott Gruber, Citigroup)
A: While specific decisions are pending, SLB is considering ways to better highlight the digital business in its portfolio segmentation following the ChampionX acquisition. (Olivier Le Peuch)
Q: Can you provide more color on the margin expansion potential for 3Q and 4Q? (Scott Gruber, Citigroup)
A: SLB expects margin expansion in 3Q with an uptick in 4Q due to acceleration in top-line growth and year-end effects of product sales, setting a strong exit point for 2025. (Olivier Le Peuch)
Q: Could you elaborate on the concept of quality revenue growth and plans to boost efficiency? (Arun Jayaram, JPMorgan)
A: SLB focuses on selective quality revenue growth in areas with operational leverage and technology adoption potential, supported by adjustments in support structures and operational resources. (Olivier Le Peuch)
Q: Can you discuss the D&I margin progression and the APS business in Canada? (Arun Jayaram, JPMorgan)
A: Digital margins are expected to improve in the second half, with APS business being flat. SLB is in the process of divesting its Canada APS asset, with negotiations ongoing with selected buyers. (Stephane Biguet)
Q: Could you talk about the deepwater markets and incremental investment in Subsea? (Neil Mehta, Goldman Sachs)
A: Deepwater markets are resilient with multiple growth legs, supported by strong portfolios of projects, FIDs, and exploration activity. SLB is well-positioned in this market through its OneSubsea JV and technology offerings. (Olivier Le Peuch)
Q: What are your return of capital intentions and how are you taking advantage of stock dislocation? (Neil Mehta, Goldman Sachs)
A: SLB's priority is returns to shareholders, with a commitment of $3 billion in total returns for 2024, including stock repurchases and dividends. (Stephane Biguet)
Q: Can you provide your latest thoughts on M&A appetite and characteristics of potential targets? (Dan Kutz, Morgan Stanley)
A: SLB's current focus is on integrating recent acquisitions rather than pursuing new M&A, prioritizing returns to shareholders. (Stephane Biguet)
Q: Can you discuss opportunities for margin improvement in Aker Carbon Capture? (Dan Kutz, Morgan Stanley)
A: The CCS market is growing rapidly, and SLB sees significant opportunities for scaling and innovation in carbon capture technology, which will contribute to margin expansion. (Olivier Le Peuch)
Q: Can you elaborate on the cost efficiency programs mentioned? (Luke Lemoine, Piper Sandler)
A: The program includes adjusting operational resources, centralizing digital delivery services, and improving functional superstructure efficiency, with charges in 3Q not to exceed those in 2Q. (Stephane Biguet)
Q: Can you discuss the all-electric subsea opportunity and regulatory constraints? (Saurabh Pant, Bank of America)
A: The all-electric subsea solution offers advantages in cost, digital control, and carbon footprint reduction, with SLB leading in this technology and seeing significant opportunities for deployment in various basins. (Olivier Le Peuch)
Q: Can you provide insights on exploration data license sales and the exploration market? (Saurabh Pant, Bank of America)
A: Exploration data sales have been growing, driven by frontier exploration and infrastructure-led exploration, with SLB benefiting from licensing rounds and increased interest in exploration across various regions. (Olivier Le Peuch)
Q: Can you update us on your outlook for international and North America revenue growth in 2024? (Marc Bianchi, TD Cowen)
A: SLB expects double-digit growth internationally (excluding Aker and Russia) and lower growth in North America compared to original guidance, due to market constraints. (Olivier Le Peuch)
Q: What have you picked up incrementally regarding the shift in Saudi Arabia's gas strategy? (Kurt Hallead, Benchmark)
A: Saudi Arabia's commitment to expanding gas production is clear, with SLB favorably exposed to both conventional and unconventional gas projects, benefiting from the accelerated gas expansion. (Olivier Le Peuch)