Shares of SLB (SLB) traded sharply higher Friday after the oilfield services company delivered second-quarter earnings and revenue that topped analyst expectations. The stock was up nearly 10% at $51.91 in afternoon trading.
The beat was driven by strong North America sales, robust Digital growth, and improving momentum in Production Systems and Data Center Solutions. But the bigger story might be what SLB's management sees ahead: a world where energy security concerns are sparking a fresh wave of oil and gas investment.
The Numbers
Adjusted earnings per share came in at $0.55, beating the $0.51 consensus estimate. Revenue rose 5% year-over-year to $8.972 billion, also ahead of the $8.672 billion analysts were looking for.
On a GAAP basis, EPS fell 30% to $0.52, and net income declined 22% to $786 million. Adjusted EBITDA dropped 7% to $1.90 billion, with margins narrowing to 21.2%. The quarter included $69 million in merger and integration charges.
Segment Highlights
Digital revenue was a standout, climbing 18% to $697 million, with pretax margins expanding to 27.8%. Annualized recurring revenue increased 15% to $1.04 billion, showing that SLB's push into digital services is gaining traction.
Production Systems revenue jumped 29% to $3.77 billion, including $870 million from ChampionX, the chemical business SLB acquired last year. Excluding ChampionX, segment revenue actually fell 1%, and total revenue declined 5%. Still, management noted that ChampionX remained margin-accretive despite chemical-cost inflation.
Reservoir Performance revenue fell 8% to $1.56 billion, and Well Construction declined 7% to $2.74 billion. Pretax margins in those segments narrowed to 14.9% and 15.2%, respectively.
Data Center Solutions revenue surged 80% to $186 million. SLB expects its annualized run rate to exceed $1 billion by year-end 2026 and $2 billion by the end of 2027. That's a business that's clearly hitting its stride.
Regional Results
International revenue declined 3% to $6.67 billion, while North America revenue jumped 36% to $2.24 billion, reflecting strong activity in the Permian and other basins.
Middle East revenue fell 13% sequentially due to conflict-related disruptions. Temporary cost actions limited the EPS impact to slightly below SLB's previously indicated range of $0.06 to $0.08. Management said the timing of a full regional recovery remains uncertain, with Iraq still constrained.
Cash Flow and Returns
Operating cash flow totaled $1.36 billion, and free cash flow reached $716 million. SLB ended the quarter with $4.07 billion in cash and short-term investments, $12.80 billion in total debt, and $8.73 billion in net debt.
The company repurchased 12 million shares for $648 million and approved a quarterly dividend of $0.295 per share. SLB continues to target at least $2.4 billion in buybacks for 2026 and more than $4 billion in total shareholder returns. Full-year capital investment remains projected at about $2.5 billion.
Outlook and Risks
For the third quarter, SLB expects revenue to increase 3% to 4% sequentially, with adjusted EBITDA margin expanding about 75 basis points. But there's a caveat: a renewed Middle East escalation could reduce Q3 revenue by roughly $150 million and adjusted EBITDA by $75 million, primarily affecting Well Construction and Reservoir Performance.
For the fourth quarter, SLB expects revenue above $10 billion and adjusted EBITDA margin near 24%, assuming continued Middle East recovery. Management also expects second-half free cash flow to materially exceed first-half levels, supported by higher earnings, stronger collections, and lower inventories.
Energy Security Drives Fresh Oil Investment
Perhaps the most interesting part of the report was SLB's commentary on the macro environment. The company said growing concerns about energy security are driving a renewed cycle of global oil and gas investment, particularly in offshore and deepwater projects.
Management noted that rising exploration activity, expanding production capacity, and stronger demand for long-cycle developments are supporting a more constructive outlook, despite ongoing geopolitical uncertainty in the Middle East. The company expects these trends to underpin higher international spending and contribute to stronger revenue, margins, and cash flow in the second half of 2026.
In other words, the world's need for reliable energy is outweighing the push for a rapid transition, at least for now. And SLB is positioned to benefit.
