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Schlumberger: This Is "The Most Severe Downturn For Decades", "The Recovery Now Appears To Be Delayed"

Moments ago energy infrastructure giant Schulmberger reported third quarter earnings. We won't waste much time on the numbers (EPS of $0.78 beat consensus estimates by 1 cent due to $545 million in buybacks, and a drop in the effective tax rate, which was nonetheless a 48% plunge Y/Y, on revenue of $8.5bn which missed, and tumbled 33% Y/Y) and instead we will focus on the wording in the press release which, just like Fastenal's from a few days ago, admitted the recession has arrived.

Here it is, with the punchlines highlighted:

Schlumberger Chairman and CEO Paal Kibsgaard commented, “Schlumberger third-quarter revenue decreased 6% sequentially driven by a continuing decline in rig activity and persistent pricing pressure throughout our global operations. North America revenue fell 4% sequentially as we focused on balancing margins and market share, while International revenue dropped 7% due to customer budget cuts, activity disruptions, and service pricing erosion.

 

“The business environment deteriorated further in the third quarter. However, the cost reduction actions we took in previous quarters and the acceleration of our transformation program enabled us to protect our financial performance in what is shaping up to be the most severe downturn in the industry for decades. As a result of our actions, we have been able to deliver pretax operating margins well above those seen in any previous downturn and we have continued to generate significant liquidity with free cash flow of $1.7 billion in the third quarter, representing 170% of earnings.

 

“During the first nine months of 2015, our year-on-year revenue has dropped by 34% in North America, and 18% internationally. In spite of the size of these declines, our decremental operating margins over the same period have been limited to 34% in North America, and 23% internationally. These figures continue to be substantially better than those we delivered in the 2009 downturn.

 

“As we enter the last quarter of the year, the oil market is still weighed down by fears of reduced growth in Chinese demand and the expectations regarding the timing and magnitude of additional Iranian supply. However, the fundamental balance of supply and demand continues to tighten, driven by both solid global macroeconomic growth and by weakening supply as the dramatic cuts in E&P investments are starting to take effect. We expect this trend to continue as the oil market further recognizes the magnitude of the industry’s annual production replacement challenge.

 

“However, for oilfield services, the market outlook for the coming quarters looks increasingly challenging with activity expected to be reduced further, as lack of available cash flow exhausts capital spending for a number of our customers, leading them to take a conservative view on 2016 E&P spending in spite of any gradual improvement in oil prices. In addition, the winter season will have the normal impact on activity in the fourth quarter, which this year is unlikely to be offset by the usual year-end sales of software, products and multiclient licenses.

 

“In light of conservative customer budgets for next year, we are therefore entering another period during which we will continually adjust resources in line with activity, as the recovery now appears to be delayed."

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In retrospect, it now appears that what we thought earlier was humor, when Deutsche Bank said it's not a "'recession' recession", wasn't humor at all: DB simply meant a depression is coming.