NEW YORK (TheStreet) -- I was recently asked how a stock like Schlumberger (SLB) that trades at twice the price-to-earnings ratio of a dominant company like Exxon Mobil (XOM) can be considered cheap, especially because Schlumberger's P/E of 18 is already a point higher than the industry average?The energy sector has been extremely volatile, but Schlumberger has always carried this sort of premium, even over formidable rivals such as Halliburton ( HAL) and Baker Hughes ( BHI). But Schlumberger has shown no immunity to sluggish oil prices and weak rig counts -- the same issues that has impacted the industry. Nevertheless, given Schlumberger's market-leading position, investors were always willing to pay more. Given how well Halliburton is now performing in international markets, has Schlumberger's weakness in North America narrowed the gap between the two rivals? And does Schlumberger still deserve its premium?
Despite Weakness, First Quarter Was No CalamityOilfield service revenue arrived at $10.67 billion, up 8% year over year, but down 5% sequentially. Schlumberger was hurt by slower-than-expected demand along with increased competition, which resulted in the revenue miss -- albeit marginally. Still, Schlumberger's performance in North America stood out like a sore thumb. Even though demand was a bit soft across all geographies (relative to expectations), North America's 3% decline in revenue hurt considerably. As with Halliburton and Baker Hughes, slumping oil prices have been an issue for some time. Although a case can be made that the 3% decline is much better than Halliburton's 11% drop in North America, Halliburton has significantly more exposure than Schlumberger. Schlumberger did well in areas like Mideast/Asia, which posted 22% surge in revenue. There was a 9% increase in Latin America and Europe/Russia/Africa. Although drilling revenue rose 9% year over year, the drilling business was actually flat from the fourth quarter. Similarly, production revenue arrived up 7% year over year, down 4% sequentially. The same pattern was seen in the reservoir business, up 8%, but down 11% from the fourth quarter.
Excluding charges and credits, income from continuing operations advanced 4% year over year, down 6% sequentially. Diluted earnings-per-share from continuing operations arrived 7 cents lower than in the fourth quarter, 5 cents better year over year.Schlumberger posted pretax operating income of $2 billion, a 4% year-over-year increase but down 6% sequentially. Again, this is where the weak North American performance hurt the company this quarter with a 19% decline in operating income on softer margins, while Schlumberger grew operating income in all other geographies.