SLB Q2 Earnings Insights

Key Points

SLB Limited has shown impressive performance in the second quarter, with revenue rising 3% to $9 billion and adjusted EPS increasing to $0.55. Despite challenges in the Middle East, the company maintained margin improvements due to stronger performance in other regions.

Middle East Operations Remain a Headwind

The Middle East continues to be a significant challenge for SLB, with revenue there declining 13% sequentially due to conflict-related disruptions. Management acknowledges that recovery is uneven and may take time, though there are signs of improvement in countries like the UAE, Qatar, and parts of Saudi Arabia.

Growth Drivers: Production Systems, Digital, and Data Center Solutions

Several segments contributed to SLB's growth:

• Production Systems saw a 7% increase in revenue.
• Digital revenue rose by 9%.
• Data center solutions experienced a remarkable 33% sequential increase.

SLB also reaffirmed its commitment to returning over $4 billion to shareholders this year through dividends and buybacks.

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SLB reported second-quarter revenue of $9 billion, an increase of 3% compared to the previous quarter. This growth was driven by improved performance in Latin America, Europe, Africa, the U.S. land, and Asia, which offset the challenges in the Middle East. Adjusted earnings per share were $0.55, up from $0.52 in the prior quarter but down from $0.74 a year earlier.

Middle East revenue fell 13% sequentially to $1.66 billion due to operational disruptions linked to conflicts. SLB took temporary cost measures to mitigate the impact on earnings, resulting in a slight reduction in earnings per share.

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Despite the Middle East challenges, SLB reported improved margins. The pre-tax segment operating margin increased by 49 basis points, and adjusted EBITDA margin rose by 83 basis points.

Production Systems and Digital Lead Growth

Chief Executive Officer Olivier Le Peuch highlighted that growth outside the Middle East was broad-based, supported by higher offshore activity in several regions including Brazil, Guyana, Mexico, Scandinavia, Nigeria, China, Indonesia, India, and Australia. Improved demand for production chemicals, artificial lift, and valves in the U.S. land market also contributed to the positive trend.

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Production Systems was the largest division in the quarter, with revenue rising 7% to $3.8 billion. This increase was fueled by OneSubsea, artificial lift, valves, surface production systems, and completions. Pre-tax operating margin improved by 138 basis points to 15.5%, aided by better profitability in OneSubsea and artificial lift, as well as contributions from ChampionX's Production Chemicals and Artificial Lift businesses.

Le Peuch noted that Production Systems adjusted EBITDA margins returned to above 20%. ChampionX delivered sequential margin expansion for the third consecutive quarter despite inflation in chemicals.

Digital revenue increased 9% to $697 million, while pre-tax operating margin rose 683 basis points to 27.8%. Digital adjusted EBITDA margin reached 34.7%, up 860 basis points sequentially, driven by exploration data licenses and transfer fees in Brazil and Indonesia, along with improved profitability in digital operations, platforms, and applications. SLB said digital annual recurring revenue increased 15% year over year.

Reservoir Performance revenue declined 2% to $1.6 billion, and Well Construction revenue also fell 2% to $2.7 billion, primarily due to Middle East disruptions. Well Construction margin remained essentially flat as lower profitability in the Middle East was offset by improved profitability in North America and Latin America.

Middle East Recovery Remains Uneven

Management stated that activity resumed in several Middle Eastern countries during the quarter, although operations in Iraq remained constrained by security concerns. Le Peuch mentioned that recovery will vary by country, customer, and operating environment, and a return to full activity will take time.

During the question-and-answer session, Le Peuch noted increased customer engagement as operators plan to restore shut-in wells, expand capacity, and deploy production-recovery solutions. Activity had been restored and was strengthening in the United Arab Emirates, Qatar, and, to some extent, Saudi Arabia, while Iraq remained more constrained.

SLB expects initial recovery work to include well intervention, production chemicals, coiled tubing, and other ChampionX-related production and recovery offerings. Management also indicated that the disruption could accelerate interest in digital tools to optimize existing wells and operations.

For the third quarter, SLB's base case assumes a gradual Middle East recovery and calls for global sequential revenue growth of 3% to 4%, with approximately 75 basis points of adjusted EBITDA margin expansion. Core-division revenue is expected to rise in the low- to mid-single digits, while Digital revenue is projected to increase in the low single digits.

The company also outlined a downside scenario where renewed escalation prevents remobilization efforts and leaves Middle East revenue flat sequentially. In that case, third-quarter revenue would be about $150 million below its base case, and adjusted EBITDA would face an approximately $75 million headwind, primarily in Well Construction and Reservoir Performance.

Deepwater Activity and Fourth-Quarter Outlook

Le Peuch mentioned that the market is beginning to show characteristics of an upcycle, citing the need to replenish inventories and strategic reserves, diversify supply, develop domestic resources, and rebuild spare capacity. Third-party reports indicate final investment decisions for long-cycle projects could increase about 30% year over year in 2026.

SLB expects stronger exploration spending and deepwater capital investment during the second half of 2026, led by Africa, with a more meaningful impact in 2027 across Latin America, the Mediterranean, and Asia. Management also highlighted continued activity in Brazil, Guyana, Suriname, the North Sea, and the Gulf of America.

The company reiterated its ambition for OneSubsea bookings to reach $9 billion over two years. Le Peuch said SLB is expanding its subsea portfolio, including trees, manifolds, umbilicals, processing and boosting solutions, while pursuing life-of-field service capabilities and alliances with customers and partners.

For the fourth quarter, SLB expects Middle East revenue of $2.1 billion to $2.2 billion, or roughly 95% of the level achieved in the fourth quarter of 2025. Assuming that recovery, continued deepwater momentum, and typical year-end Digital product sales, the company expects fourth-quarter revenue to exceed $10 billion, representing about 5% year-over-year growth. Adjusted EBITDA margin is expected to be about 24%.

Data Center Business Expands

SLB's data center solutions revenue grew 33% sequentially and 80% year over year. The business added hyperscaler customers and expanded from equipment manufacturing into data center design, engineering, and system integration.

Le Peuch explained that SLB uses off-site fabrication to produce modular equipment for server infrastructure and cooling systems, aiming to provide customers with shorter delivery times and scalable deployment. The company said its backlog is already sufficient to support an annualized revenue run rate exceeding $2 billion by the end of 2027.

Biguet noted that the data center business is not currently accretive to SLB's overall margins, but it is accretive to revenue and earnings growth and has strong free-cash-flow characteristics because of its capital-light business model and contract terms.

SLB generated $1.4 billion in cash flow from operations and $716 million in free cash flow during the quarter. It ended the period with net debt of $8.7 billion, repurchased $648 million of stock, and maintained its full-year target to return more than $4 billion to shareholders through dividends and buybacks.

About SLB (NYSE:SLB)

SLB (NYSE: SLB), historically known as Schlumberger, is a leading global provider of technology, integrated project management, and information solutions for the energy industry. Founded by Conrad and Marcel Schlumberger in 1926, the company develops and supplies products and services used across the exploration, drilling, completion, and production phases of oil and gas development. Its offerings are intended to help operators characterize reservoirs, drill and complete wells, optimize production, and manage field operations throughout the asset lifecycle.

SLB's product and service portfolio spans reservoir characterization and well testing, wireline and logging services, directional drilling and drilling tools, well construction and completion technologies, production systems, and subsea equipment.

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