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Why Is Core Laboratories (CLB) Up 2.6% Since Last Earnings Report?

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It has been about a month since the last earnings report for Core Laboratories (CLB - Free Report) . Shares have added about 2.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Core Laboratories due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Second-Quarter 2018 Results

Core Laboratories reported second-quarter 2018 adjusted earnings of 59 cents per share, in line with the Zacks Consensus Estimate. This compares favorably with the prior-year quarter figure of 48 cents. The results were driven by improved performance of the Product Enhancement segment.

Total revenues of $175.5 million marginally outpaced the Zacks Consensus Estimate of $175 million. Revenues were up 10.9% from the prior-year level of $158.2 million. Higher revenues from the Product Enhancement segment boosted the top line, partially offset by delayed recovery of international market activities.

Segment Performance

Reservoir Description: This segment’s revenues were $102.1 million compared with $104.3 million in second-quarter 2017. Of the total revenues of the segment, more than 80% comes from the international market. The year-over-year fall in revenues were caused by delayed recovery of international market’s activities, especially in the Middle East and Asia-Pacific regions.

Operating income of the segment was about $14.8 million in the quarter compared with $18.7 million in the prior-year quarter. Operating margin of the segment was 15%.

Production Enhancement: Segment revenues were approximately $73.4 million in the quarter compared with $53.9 million in second-quarter 2017. Increased demand for the company’s advanced technology solutions helped in generating higher revenues. Notably, U.S. land revenues at the segment surged 48% year over year.

Segment operating income was about $18.4 million in the quarter compared with $8.7 million in the prior-year quarter, reflecting a surge of 111.5%. Operating margin of the segment was 26%. Improved utilization, along with higher-technology services and products drove margins in both the segments.

Balance Sheet & Free Cash Flow

As of Jun 30, 2018, Core Laboratories had cash and cash equivalents of around $13 million and long-term debt (including lease obligations) of approximately $241.7 million. The debt-to-capitalization ratio of the company was 60.5%.

Capital expenditure in the second quarter was $7.5 million, reflecting a significant increase from $2.9 million in the year-ago quarter.

The company generated free cash flow of approximately $19.5 million in the quarter under review.

Dividend

The board of directors declared a quarterly cash dividend of 55 cents per share, payable on Aug 13, 2018 to its shareholders of record as of Jul 23, 2018.

Guidance

For third-quarter 2018, Core Laboratories expects earnings to be around 64-66 cents per share. The company expects third-quarter revenues in the range of $177-179 million while operating income is expected between $36.2 million and 37.2 million. The company expects operating margin to be more than 20% in third-quarter 2018.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Core Laboratories has a nice Growth Score of B, however its momentum is doing a bit better with an A. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for momentum investors than growth investors.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Core Laboratories has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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