Middle East Disruptions Drag Down EPS 28% as Digital and Production Segments Grow (SLB Q1 2026 Earnings Call)
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SLB faced a turbulent first quarter as severe geopolitical disruptions in the Middle East led to operational shutdowns and production shut-ins. Despite these headwinds weighing heavily on margins and earnings, the company found resilience through its recent ChampionX acquisition and expanding digital and data center portfolios, positioning itself for a broad-based recovery.
EPS Drops 28% Amid Middle East Operational Shutdowns
SLB reported a challenging start to the year, with first-quarter earnings per share falling $0.20 year-over-year to $0.52. While total global revenue increased 3% to $8.7 billion, this growth was entirely driven by the ChampionX acquisition; excluding it, revenue declined 7%. The conflict in the Middle East severely impacted operations, driving a sequential revenue drop of over $1 billion from the fourth quarter. Consequently, the company's adjusted EBITDA margin contracted by 346 basis points to 20.3%, pressured by high decrementals, increased logistics costs, and pricing headwinds.
Management Foresees Sequential Offset in Q2
Looking to the second quarter, management outlined a scenario where ongoing Middle East disruptions are fully offset by mid-to-high-single-digit revenue growth across the rest of its international markets. North American revenue is expected to remain flat sequentially. Chief Financial Officer Stephane Biguet reaffirmed full-year capital investments at approximately $2.5 billion and maintained the commitment to repurchase a minimum of $2.4 billion in stock. Over the medium term, CEO Olivier Le Peuch expressed confidence that a structurally higher oil price and the need to replenish strategic reserves will trigger a robust upstream investment cycle into 2027 and 2028.
Production Systems and Digital Outperform Legacy Segments
Segment performance was sharply bifurcated by the Middle East crisis. Production Systems revenue surged 23% year-over-year, buoyed by the accretive ChampionX integration, while Digital revenue grew 9%, supported by strong adoption of digital operations and a 45% expansion in the data center business. In contrast, Reservoir Performance and Well Construction both saw 6% revenue declines. OneSubsea experienced margin compression due to project mix and start-up costs, though management expects profitability to normalize in the coming quarters backed by a growing backlog and recent awards in Malaysia and the North Sea.
Why Data Centers and AI Dominated the Q&A
During the Q&A, analysts focused on SLB's strategic pivot toward technology and digital infrastructure. Executives highlighted a new strategic partnership and software acquisition with S&P Global Commodity Insights aimed at enhancing AI capabilities and unconventional workflows. Management also detailed their growing data center business, noting the recent selection by NVIDIA as a modular design partner for AI factories, keeping SLB on track to achieve a $1 billion run rate by year-end. Regarding the Middle East, leadership emphasized that recovery will be gradual, beginning with well interventions before returning to full-scale development.