SLB Earnings Call: Near-Term Hit, Long-Term Upside

Schlumberger ((SLB)) has held its Q1 earnings call. Read on for the main highlights of the call.

SLB’s latest earnings call painted a picture of short‑term pain but intact long‑term promise. Management detailed how conflict‑driven shutdowns in the Middle East hammered revenue, margins and cash flow, while higher logistics and chemical costs squeezed profitability. Yet they stressed structural growth drivers in production, digital and data centers that they believe will underpin a stronger upcycle into 2027–2028.

Company-wide revenue growth cushioned by ChampionX

SLB reported first-quarter global revenue of $8.7 billion, up 3% year over year despite heavy regional disruption. The gain was largely due to the ChampionX acquisition, which helped offset underlying weakness and highlighted the importance of M&A in sustaining top-line growth during a turbulent quarter.

ChampionX boosts Production Systems scale and earnings power

Production Systems revenue jumped to $3.5 billion, a 23% increase from a year earlier, again driven by the integration of ChampionX. On a pro forma basis, ChampionX businesses grew about 2%, and management emphasized that synergies are tracking to plan, making the deal earnings accretive and strategically important to SLB’s production‑focused portfolio.

Digital revenue and recurring ARR accelerate

Digital revenue reached $640 million, up 9% year over year, while annual recurring revenue climbed 15% to $1.02 billion, underscoring a shift to stickier, subscription‑like business. Within that, digital operations grew 87% and automated footage reading soared 145%, signaling strong customer adoption of SLB’s higher‑margin software and automation offerings.

Data center solutions surge with NVIDIA partnership

Data center solutions revenue increased 45% year over year, with management targeting a $1 billion run rate by year-end and faster growth into 2027. SLB also unveiled a modular design partnership with NVIDIA for DSX AI factories, positioning the company to capture compute‑heavy energy and industrial workloads as AI infrastructure spending expands.

OneSubsea backlog supports deepwater upcycle

OneSubsea’s backlog grew roughly 5% year over year, providing multi‑year visibility as deepwater activity recovers. Management expects bookings in 2024 to be “visibly higher” than last year, reinforcing their view that subsea will be a durable growth engine as offshore operators commit to large, long‑cycle projects.

Shareholder returns remain a priority despite volatility

SLB repurchased $451 million of stock in the first quarter and reiterated plans to buy back at least $2.4 billion of shares this year. Looking ahead to 2026, the company is targeting more than $4 billion in total shareholder returns via dividends and buybacks, signaling confidence in cash‑generation potential beyond the current disruption.

Cash flow resilience and disciplined capex

The company generated $487 million of operating cash flow in Q1, while capital investments reached $510 million. For the full year, SLB expects about $2.5 billion in capital investments, maintaining a disciplined but growth‑oriented spend profile focused on high‑return technologies and its core strategic growth vectors.

Three structural growth themes for the next cycle

Management framed SLB’s strategy around three levers: production recovery, digital and data center solutions, each designed to be more technology‑led and less cyclical. They argued this mix should deliver higher returns and smoother earnings into 2027–2028, even as traditional drilling markets remain exposed to geopolitical and commodity‑price swings.

Middle East conflict drives severe operational disruption

Conflict in the Middle East triggered shutdowns, force majeure in Qatar, suspended offshore work in Iraq, export bottlenecks and production shut-ins, materially denting Q1 revenue and profit. The region’s importance to SLB means these disruptions had an outsized impact, turning what could have been a growth quarter into a reset on earnings momentum.

Underlying revenue decline without ChampionX

Excluding the benefit of ChampionX, company revenue dropped $607 million, or 7% year over year, showing the depth of the operational hit. Sequentially, revenue fell about 10.5%, or just over $1 billion, underlining that the quarter’s headline growth masked significant core weakness tied primarily to the Middle East situation.

Earnings and margin compression underscore near-term strain

Earnings per share, excluding charges and credits, fell to $0.52, down $0.20 from a year earlier as disruptions and cost inflation weighed. Adjusted EBITDA margin declined 346 basis points to 20.3%, a notable contraction for a company that has spent years rebuilding profitability, and a key investor concern heading into the second quarter.

Division-level revenue pressure in Reservoir and Well Construction

Reservoir Performance revenue slipped 6% to $1.6 billion, while Well Construction revenue also fell 6% to $2.8 billion, with management tying most of the weakness to the Middle East. These segments are heavily exposed to offshore and complex projects in the region, making them focal points for downside when access, logistics and operations are interrupted.

OneSubsea margin dip expected to be temporary

OneSubsea’s pretax margin slid to 14.4% in Q1 from 18.1% a year ago as large legacy programs wound down and new projects carried start‑up costs. Management expects margins to normalize over the year as execution ramps on newer awards and the higher backlog flows through, but investors will watch closely for evidence of that rebound.

Higher costs and supply chain stress hit profitability

The conflict drove up logistics, transportation and chemical costs, which in turn pressured margins across several businesses. SLB also incurred extra procurement and materials expenses and is now pursuing contract pass‑throughs and negotiations to recapture some of this inflation, though the timing and completeness of recovery remain uncertain.

Working capital build lifts net debt and weakens free cash flow

Net debt rose $797 million sequentially to $8.2 billion, reflecting seasonal working capital needs and delayed collections in affected Middle East markets. Free cash flow was slightly negative at -$23 million after annual employee incentive payments, a reversal from the company’s typical cash generation but one management sees as temporary.

Ongoing disruption adds near-term earnings risk

Management estimated that continued Middle East operational issues could pose an incremental second-quarter EPS headwind of $0.06–$0.08. Because that impact depends on how long disruptions persist, second‑quarter guidance is unusually uncertain and scenario‑driven, leaving investors braced for volatility in the near term.

Guidance points to recovery if Middle East stabilizes

SLB’s outlook assumes Middle East disruptions ease around mid‑Q2, allowing the $0.06–$0.08 EPS drag to be offset by mid‑ to high‑single‑digit growth in the rest of its international markets, with North America roughly flat. Management reaffirmed at least 35% full‑year Digital EBITDA margins, a path to a $1 billion data center run rate by 2026 with acceleration in 2027, improving OneSubsea margins as backlog converts, around $2.5 billion in 2026 capital investments and minimum share repurchases of $2.4 billion as cash flow strengthens in the back half.

SLB’s earnings call highlighted the clash between acute geopolitical headwinds and durable strategic tailwinds. Revenue and margins were clearly hit by Middle East turmoil and cost inflation, but the company continues to build scale in production, digital and data centers while returning capital to shareholders. For investors, the story hinges on when regional disruptions abate and SLB’s longer‑term growth engines can fully show through the numbers.