Core Labs Posts Strong 2Q

Core Laboratories N.V. (CLB - Analyst Report) has reported impressive second quarter 2011 results, driven by commendable performances across all the three business units.

Earnings per share (EPS), excluding special items, came in at 90 cents, moving ahead of the Zacks Consensus Estimate of 88 cents. Moreover, EPS increased 27% from 71 cents in the second quarter of 2010.

Total revenue for the quarter was $225.8 million, up 13.5% from $198.9 million in the prior-year quarter, aided by strong growth in all business units.

The quarter’s results were influenced by various development projects across deepwater offshore West and East Africa, Middle East and Asia Pacific belt. Strong contributions from the Eagle Ford, Niobrara and Granite Wash shale plays also boosted Core Laboratories’ performance.

Reservoir Description Segment

Revenues at the Reservoir Description segment (which focuses on international crude oil related projects) upped 11.5% year over year to $118.8 million. Operating income for the unit grew 21% year over year to $30.3 million, with the operating margin coming in at 26%. The improvement was attributable to the start-up of various international projects as well as deepwater offshore crude-oil-related ventures.

Production Enhancement Segment

Core Laboratories’ Production Enhancement revenues leaped 11.4% year over year to $88.8 million while operating income declined 6.1% year over year to $24.5 million. Operating margin came at an impressive 28%, buoyed by the greater market share of the HTD Blast perforating system and high demand for advanced technologies.

Reservoir Management Segment

Revenues from Reservoir Management operations was $18.2 million, up 43.3% year over year while operating income escalated 97.3% year over year to $7.3 million, reflecting encouraging results from the company’s global projects. Operating margin for the quarter was 40%.

Balance Sheet, Free Cash Flow & Share Buyback

As of June 30, 2011, Core Laboratories had cash and cash equivalents of $24.6 million. Capital expenditures for the second quarter were $7.6 million. The company generated free cash flow of $32.3 million or $0.66 per diluted share.

Quarterly Dividend

On July 12, 2011, Core’s board announced a cash dividend of 25 cents per share (amounting to an annualized payout of $1.00 per share) of common stock, payable on August 22, 2011 to shareholders of record on July 22, 2011.

Guidance

The company expects third quarter 2011 revenues of approximately $230 million to $245 million and earnings in the range of 98 cents to $1.00 per share.

For 2011, Core Laboratories forecast total revenue in a $910 million to $930 million range, while earnings will likely be $3.65 to $3.72 per share, up from previous forecast of $3.55 to $3.60.

Management remains optimistic that performance in the second half of 2011 will likely be fueled by strong international and deepwater offshore activity.

Our Take

Amsterdam, Netherlands-based Core Laboratories enjoys a leadership position in the reservoir optimization niche, along with a global footprint and deep portfolio of proprietary products and services.

However, our long-term recommendation on the stock remains Neutral, given the company’s vulnerability to gas/oil price volatility, geo-political risks, competition and the advent of new technologies. The company faces competition from peers, such as Baker Hughes Incorporated (BHI - Analyst Report) and Halliburton Company (HAL - Analyst Report).

Core Laboratories currently retains a Zacks #3 Rank (short-term Hold rating).