Hi friends,
I am wondering how SLB is going to pay back the increasing debt...
Dividend increase last year
Falling Free Cash Flow... and the next 2 quarters FCF is likely to be negative!
Decreasing sales
Decreasing EBITDA
....
I see several solutions:
Cut the dividend. That will give some relief to employees.
Sell off some pieces (such as seismic division).
Any thought?
Debt level needs to be compared with EBITDA or FCF (Free Cash Flow) to see how much money is left to service the debt. Historically, SLB had about $7Billions of FCF annually. So that is pretty good FCF.
But now FCF is falling to $5 Billions on a TTM basis.
With Cameron, FCF should be gaining probably $1-2Billions range. But it seems that Cameron FCF is not stable, and goes sometimes negative.
From the FCF, we should remove the dividend. Then $2billions/year. So real FCF is probably in the $3-5 Billions range. So at best, without divesting, SLB can repay the loan ($17B) in 4 to 6 years.
So it is very likely SLB will divest something to pay back quicker the loan. Which part?
Probably one of Cameron division.
Any thought?
No excuses to buyback overvalued stock with borrowed money.
10B$ of shares repurchased while major investors have been selling off and 35000 employees have been laid off.
These are just financial engineering tricks to boost executive bonus. Period.
Debt isn't normally compared versus revenue. It is normally compared as part of the capital structure (debt vs. equity) and then consideration is given as to whether the company has the ability to continue repaying that debt. These days you might say that SLB DOES NOT have the ability to repay the debt because earnings are negative. But if you look on a longer time frame and consider normalized earning during bull and bear markets in the oil sector then you may find that the debt is easily covered.
These days with low interest rates, some companies are issuing debt just because they can do so and they don't need the money for any specific reason. It's practically free money in this economic environment.
The debt load might come back one day on the shoulder of the next generation.
$17 billion debt for $28 Billions revenue?
Does it seem to be high debt for such revenue?
I'm with -vqz. Companies seem to be issuing debt to cover dividends instead of cutting them. A dividend cut often implies or signals that a company has determined that conditions are worse than expected and causes a large drop in confidence in the market. That might lead to a big drop in stock price. Better a company figure out another way to continue paying dividends if they don't was to the stock price to drop.
When you can borrow money for 1%, you don't have to worry.
The dividends won't be touched. The employees are wayyyyyy down on the list of resources.