Schlumberger Earnings Were Impressive. Why Its Stock Dipped.

Investors may be reacting to the oil-services company’s guidance, which implied that it could raise its capital spending in 2021. In general, Wall Street has been hoping energy firms restrain capital spending to make sure they don’t overspend as they have in the past.

After excluding one-time items, Schlumberger posted earnings per share of 22 cents, ahead of expectations for 17 cents. Its revenue of $5.5 billion—down 33% year over year—beat estimates of $5.2 billion. There were several highlights, including much better than expected free cash flow, which came in at $554 million versus Wall Street expectations for $347 million.

Analysts were generally positive on the report. “Schlumberger remains our top pick in oilfield services given their leverage to recovery abroad, margin expansion prospects and free cash flow generative business model,” wrote Citigroup’s Scott Gruber.

Schlumberger, like other oil companies, has been drastically downsizing, even before the pandemic, to better compete in a world where companies have been spending less on drilling. It sold a majority stake in its U.S. shale drilling unit last year to focus more on higher-yielding businesses.

Even so, analysts have raised questions about its capital spending budget for 2021, which appears to be slightly higher than some had anticipated. Schlumberger said it expected to spend $1.5 billion to $1.7 billion, which could indicate an increase from the $1.5 billion it spent in 2020. Executives said on the company’s conference call that they planned to remain restrained in their spending, but that they “don’t want to miss the opportunity” from higher activity.

Schlumberger sounds optimistic about the global recovery from the pandemic, arguing that the rebound is well under way. In the fourth quarter, the company posted sequential revenue growth in all four of its divisions.

“We are starting 2021 from a position of strength,” said CEO Olivier Le Peuch on the conference call.

Oil demand could fully return in two years or less.

“We believe this sets the stage for oil demand to recover to 2019 levels no later than 2023, or earlier as per recent industry analysts’ reports, reinforcing a multiyear cycle recovery as the global economy strengthens,” Le Peuch said in a statement.

Write to Avi Salzman at avi.salzman@barrons.com