• Revenue: $9.2 billion, flat sequentially.

• Adjusted EBITDA Margin: Increased by 55 basis points to 25.6%.

• Free Cash Flow: $1.81 billion.

• Earnings Per Share (EPS): $0.89, excluding charges and credits.

• Digital and Integration Revenue: $1.1 billion, increased 4% sequentially.

• Digital and Integration Margins: Expanded 456 basis points to 35.5%.

• Production Systems Revenue: $3.1 billion, increased 3% sequentially.

• Production Systems Margins: Expanded 110 basis points to 16.7%.

• Cash Flow from Operations: $2.4 billion.

• Capital Investments: $644 million in the third quarter.

• Share Repurchases: 11.3 million shares for $501 million.

• Total Returns to Shareholders: Approximately $2.4 billion year-to-date.

• Warning! GuruFocus has detected 2 Warning Sign with SLB.

Release Date: October 18, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Schlumberger Ltd (NYSE:SLB) delivered strong third-quarter results with continued margin expansion, achieving an adjusted EBITDA margin of 25.6%.

• The company generated very strong free cash flow of $1.81 billion during the quarter.

• SLB's digital business reached a new quarterly revenue high, with pre-tax segment operating margins expanding to 36%.

• The company announced several new digital products and partnerships, including collaborations with NVIDIA and Amazon Web Services.

• SLB is well-positioned to benefit from long-cycle deepwater projects and capacity expansion projects in the Middle East, which remain economically favorable.

Negative Points

• Revenue was flat sequentially, indicating a more cautious approach to discretionary short-cycle spending due to commodity price pressures.

• North American revenue growth was constrained by lower drilling activity in US land, impacted by gas prices and capital discipline by operators.

• Well construction revenue decreased 3% sequentially due to lower rig count in US land and Saudi Arabia.

• The macro environment remains challenging, with commodity prices under pressure and uncertainty around OPEC+ supply releases.

• The company anticipates muted revenue growth in the fourth quarter, with potential budget exhaustion in US land and cautious spending from international customers.

Q & A Highlights

Q: Could you discuss the drivers for margin expansion as we move into 2025, given the expected muted top-line growth? A: Olivier Le Peuch, CEO: We aim to maintain our margin expansion journey into 2025, leveraging international growth, digital technology, and cost optimization. Our digital business is expected to reach approximately $3 billion, and we have initiated cost-out measures to enhance operating efficiency.

Q: How successful was the recent Digital Forum, and what are your thoughts on digital uptake? A: Olivier Le Peuch, CEO: The forum was our best yet, showcasing our integrated digital platform. Customers realized the value of our digital offerings across various domains, which will expand the total addressable market and accelerate adoption, particularly in digital operations.

Q: Can deepwater projects drive growth beyond 2025, given the plateauing cycle? A: Olivier Le Peuch, CEO: Yes, deepwater projects remain a growth engine. Offshore FIDs are expected to exceed $500 billion from 2023 to 2026, supporting growth beyond 2025. This is driven by strong exploration activity and new reserves.

Q: What impact will the Palliser sale have on financials, and how does it affect capital intensity? A: Stephane Biguet, CFO: The Palliser sale will reduce revenue by approximately $500 million annually but also decrease CapEx by $150 million per year. It removes significant future abandonment liabilities, reducing earnings volatility and capital intensity.

Q: How do you view the pricing dynamics internationally, given the cautiousness in short-cycle markets? A: Olivier Le Peuch, CEO: The pricing environment remains constructive due to capital discipline and limited spare capacity in the industry. Our performance, technology, and integration capabilities support our pricing strategy, and we don't foresee significant changes.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.