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Core Labs' (CLB) Q4 Earnings & Sales Lag on Low Crude Prices

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Core Laboratories N.V. (CLB - Free Report) recently reported fourth-quarter 2018 adjusted earnings of 48 cents per share, a penny lower than the Zacks Consensus Estimate. The bottom line also came in at the lower end of the company’s guided range of 48-54 cents. Earnings also deteriorated from the prior-year figure of 58 cents. Weakness in oil prices during the quarter, leading to tepid U.S. onshore activities, along with muted performance in the international and offshore markets led to the dismal results. 
 
Total revenues of $173.21 million missed the Zacks Consensus Estimate of $175 million. The top line also came in at the lower end of the company’s guided range of $173-$176 million. However, the top line recorded a slight increase from the prior-year level of $172 million.
 
Core Laboratories N.V. Price, Consensus and EPS Surprise
Segmental Performance
 
Reservoir Description: This segment’s revenues were $106.6 million compared with $104.6 million in fourth-quarter 2018. Of the total revenues from the segment, more than 80% was generated from the international market. Operating income of the segment was about $10.4 million compared with $17.3 million in the prior-year quarter, owing to which operating margin came in at 9.7% vis-à-vis 17% in the year-ago period. Muted activities in the international markets and deepwater projects impacted the segment’s results. 
 
Production Enhancement: The segment revenues were approximately $66.6 million compared with $65.4 million in fourth-quarter 2017. Segment operating income was about $7.7 million in the quarter compared with $14.1 million in the prior-year period, reflecting a decline of 45.5%. Operating margin of the segment reduced to11.5% from the year-ago figure of 23%. Slowdown in onshore well completions in the United States amid weakness in oil prices impacted the segment’s results. 
 
Balance Sheet, Cash Flow & Dividend
 
As of Dec 31, 2018, Core Labs had cash and cash equivalents of around $13.1 million and long-term debt (including lease obligations) of approximately $289.7 million. The debt-to-capitalization ratio of the company was 64.3%.
 
Core Labs generated $37.9 million operating cash in the quarter and capital expenditure totaled $5.7 million. This led to the generation of $32.2 million in free cash flow. Apart from returning value to its shareholders through dividends and share buybacks, the free cash flow will also be utilized to reduce debt.
 
The board of directors declared a quarterly cash dividend of 55 cents per share, payable on Feb 15, 2019 to its shareholders of record as of Jan 25, 2019.
 
Guidance
 
The company expects first-quarter 2019 revenues in the $164-$168 million range. Operating income is anticipated in the range of $26-$27 million, with operating margin of 16%. It foresees first-quarter earnings per share in the range of 42-45 cents. While the first quarter is anyway seasonally soft for the company, Core Labs also believes that the pipeline pinch and low oil prices would be a drag on the firm’s results.
 
Nonetheless, the company foresees an uptick in results later in the year as it expects crude prices and pipeline issues to alleviate gradually. On a further encouraging note, Core Labs green lighted 30 major projects (international, offshore and deepwater) during 2018, which is likely to drive future revenue growth. Moreover, it expects to make final investment decisions on another 30 projects this year, once the crude prices start settling down.
 
Zacks Rank & Key Picks
 
Amsterdam-based oil field service provider Core Labs currently has a Zacks Rank #5 (Strong Sell). 
 
Some better-ranked players in the energy space include Jones Energy, Inc. , RGC Resources Inc. (RGCO - Free Report) and Sunoco LP (SUN - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
 
Jones Energy expects 2019 earnings to grow19% year over year.
 
RGC Resources delivered average positive earnings surprise of 87.64% in the preceding four quarters.
 
Sunoco LP pulled off average positive earnings surprise of 18.39% in the trailing four quarters.
 
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