Schlumberger (NYSE:SLB) Firing on All Cylinders as International Demand Surges

Published on September 24, 2024 | Ticker: SLB

Schlumberger Limited (NYSE:SLB), the world's leading provider of technology and services to the energy industry, has delivered an impressive performance in the second quarter of 2024, showcasing its ability to capitalize on the ongoing growth cycle while driving operational efficiency across its business.

Financials

The company's revenue for the second quarter of 2024 reached $9.1 billion, a 5% sequential increase, primarily driven by the strong performance in international markets. For the full year 2023, Schlumberger reported annual revenue of $33.135 billion. The company's net income for the second quarter of 2024 was $1.145 billion, bringing the annual net income for 2023 to $4.203 billion. Schlumberger's operating cash flow for the second quarter of 2024 was $1.4 billion, contributing to the annual operating cash flow of $6.637 billion in 2023. The company's free cash flow for the second quarter of 2024 was $776 million, resulting in an annual free cash flow of $4.545 billion in 2023.

Performance by Region

The second quarter's strong performance was driven by continued growth momentum in international markets, with more than half of Schlumberger's international geographic units posting record-high quarterly revenue. International revenue grew 6% sequentially, led by the Middle East and Asia, which continued to set new records with two-thirds of the geographic units in the region posting record-high quarterly revenue.

This growth was fueled by capacity expansion projects, new gas developments, and production and recovery investments across the region. Additionally, the ongoing strength of the offshore markets supported further growth in Europe and Africa, as well as Latin America, particularly in deepwater basins, where Schlumberger's OneSubsea joint venture continued to benefit from strong backlog conversion.

In North America, revenue increased 3% sequentially, led by the Gulf of Mexico, where Schlumberger saw increased activity and higher digital revenue from sales of exploration data licenses. However, this sequential growth was partially offset by lower drilling in U.S. land, as the market continues to be constrained by weaker gas prices, capital discipline, and ongoing market consolidation.

Divisional Performance

Across Schlumberger's core divisions, revenue grew 4% sequentially, and pretax segment operating margins expanded by 120 basis points. The growth was led by the Production Systems and Reservoir Performance divisions, which visibly expanded margins due to the favorable conversion of backlog as well as record activity levels. Demand for Schlumberger's services and equipment is being further reinforced by the combination of long-cycle development activity and the acceleration of production recovery investments, particularly in the Middle East, Asia, and Latin America.

In the Digital & Integration division, Schlumberger achieved highly accretive sequential growth, with the digital business reaching a new quarterly high and supporting visible sequential margin expansion. This puts the company on track to achieve its full-year ambition of digital revenue growth in the high-teens. Schlumberger's customers are increasingly choosing to partner with the company to modernize their digital infrastructure, as evidenced by several announcements included in the latest release.

Outlook

Looking ahead, Schlumberger expects the positive market dynamics and its continued focus on operating efficiency to present a strong backdrop for continued outperformance. The company has updated its full-year 2024 guidance, now expecting adjusted EBITDA growth in the range of 14% to 15% and adjusted EBITDA margins at or above 25%.

Specifically for the third quarter, Schlumberger expects sequential revenue growth in the low single-digits, enhanced by further margin expansion. This momentum is expected to accelerate towards the end of the year, with a visible increase in top-line growth and an uptick in margin expansion during the first quarter of 2025 due to seasonally higher year-end digital and product sales.

Liquidity

Schlumberger's strong liquidity position, with $2.953 billion in cash and $1.050 billion in short-term investments as of June 30, 2024, coupled with $4.6 billion in available and unused committed debt facility agreements, provides the company with ample resources to fund its operations, strategic initiatives, and shareholder returns.

The company has returned $1.5 billion to shareholders in the first half of 2024 through a combination of stock repurchases and dividends. Schlumberger expects to generate higher EBITDA and strong cash flows in the second half of the year, supporting its full-year commitment of $3 billion in total returns to shareholders. The company has also set a target of $4 billion in total returns to shareholders for 2025.

Recent Developments

Schlumberger's strategic acquisitions, such as the pending acquisition of ChampionX Corporation, are expected to further enhance the company's capabilities and position it for continued growth and margin expansion. The ChampionX acquisition, which is anticipated to close in the fourth quarter of 2024 or the first quarter of 2025, will strengthen Schlumberger's production and intervention solutions portfolio, particularly in the artificial lift domain, and generate $400 million in annual pretax savings within three years post-closing.

Conclusion

The company's diversified geographic exposure, with a strong presence in the resilient international markets, coupled with its focus on digital transformation, production and recovery solutions, and strategic acquisitions, positions Schlumberger well to capitalize on the ongoing industry trends and deliver sustainable growth and profitability for its shareholders.

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