Core Labs Matches EPS, Misses Rev

Core Laboratories N.V. (CLB - Analyst Report) has reported mixed third quarter 2011 results, driven by commendable performances across all the three business units, partially hurt by steeper operating costs.

Earnings per share (EPS), excluding special items, came in at $1.00, at par with the Zacks Consensus Estimate. Comparing year over year, EPS increased 26.6% from 79 cents.

Total revenue for the quarter was $231.3 million, up 16.1 % from $199.2 million in the prior-year quarter, aided by strong growth in all business units. However, the result failed to meet our expectation of $238 million.

The quarter’s results were influenced by various development projects across deepwater offshore West and East Africa, Middle East and the Asia Pacific belt. The start-up of operations in the Gulf of Mexico and onshore South American field work also aided the results.

Reservoir Description Segment

Revenues at the Reservoir Description segment (which focuses on international crude oil related projects) upped 12.6% year over year to $119.9 million. Operating income for the unit grew slightly 2.9% year over year to $28.8 million, with the operating margin coming in at 27%. The improvement was attributable to the start-up of various international projects and deepwater offshore crude-oil-related ventures as well as strong onshore field activity.

Production Enhancement Segment

Core Laboratories’ Production Enhancement revenues leaped 23.3% year over year to $97.4 million while operating income improved 16.7% year over year to $30.7 million. Operating margin came at an impressive 34%, buoyed by the greater market share of the HTD-Blast perforating system and high demand for advanced technologies. Additionally, several field-flood projects in deepwater offshore Ghana and Equatorial Guinea boosted the performance level.

Reservoir Management Segment

Revenues from Reservoir Management operations was $14.1 million, up 2.9% year over year while operating income declined 36.4% year over year to $3.5 million. Operating margin for the quarter was 30%.

Balance Sheet, Free Cash Flow & Share Buyback

As of September 30, 2011, Core Laboratories had cash and cash equivalents of $17.0 million. Capital expenditures for the third quarter were $6.2 million. The company generated free cash flow of $42.6 million.

Quarterly Dividend

On October 11, 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 November 22, 2011 to shareholders of record on October 21, 2011.

Guidance

The company expects fourth quarter 2011 revenues of approximately $240 million to $246 million and earnings in the range of $1.06 to $1.08 per share.

For 2011, Core Laboratories forecast total revenue in a $904 million to $910 million range, while earnings will likely be $3.73 to $3.75 per share, up from the previous forecast of $3.65 to $3.72.

Management remains optimistic that performance in the last quarter of 2011 will likely be fueled by strong international and deepwater offshore activity along with robust activities in North America.

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. Core Laboratories 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).

Read the full analyst report on CLB

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