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Why Is Core Laboratories (CLB) Up 3.6% 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 3.6% 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.

Core Laboratories Q3 Earnings and Sales Surpass Estimates

Core Laboratories N.V. recently reported third-quarter 2019 results wherein adjusted earnings of 50 cents a share surpassed the Zacks Consensus Estimate of 48 cents resulting from increased international and offshore client activity. The profit was within the company’s previously guided range of 48-52 cents.

However, the bottom line declined from the year-ago earnings of 64 cents a share. Soft contribution from the Product Enhancement segment impacted the results.

Meanwhile, this oilfield service provider delivered adjusted revenues of $173.2 million, beating the Zacks Consensus Estimate of $172 million. The top line, which also fell within the company’s guided range of $171-$175 million, decreased from the year-ago revenues of $182.1 million.

Segmental Performance

Reservoir Description: Revenues were up 5.5% to $109.3 million from $103.6 million in third-quarter 2018. Of the total revenues from this segment, most were generated from the international market activities, which increased more than 9% year over year. Adjusted operating income rose 26% year over year to $19.2 million. As such, operating margin came in at 18% compared with 15% a year ago.

Production Enhancement: Revenues were approximately $63.9 million compared with $78.5 million in third-quarter 2018. Segmental operating income was about $11.6 million in the quarter, down 43% from the year-ago level of $20.3 million. Operating margin declined to 18% from the year-ago figure of 26%. The segmental underperformance is due to the reduction in U.S. land activity resulting from lower U.S. onshore rig counts.

Financials and Dividend

As of Jun 30, 2019, Core Labs had cash and cash equivalents of around $13.1 million and long-term debt (including lease obligations) of approximately $297 million. The company’s debt-to-capitalization ratio was 60.4%.

In the quarter, Core Labs generated $26 million in operating cash and its capital expenditure totalled $5.3 million. This further led to the $20.7-million free cash flow (FCF) generation. Markedly, this is the 72nd consecutive quarter of the company’s FCF recognition.

The board of directors declared a quarterly cash dividend of 55 cents per share, in line with the previous payout. The amount is payable in the fourth quarter to its shareholders of record as of Oct 18.

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Core Labs expects fourth-quarter 2019 revenues in the $161-$163 million range. Operating income is anticipated in the $28-$29 million band with operating margin estimated at 18%. The company foresees fourth-quarter earnings per share in the bracket of 44-45 cents.

Improving crude oil market fundamentals are likely to drive international activities, boosting the prospects of Core Labs’ Reservoir Description unit in turn. While the company’s deep portfolio of proprietary products and services, and ramped-up international activities bode well, a decline in both the U.S. onshore rig count and completion activity might affect its Production Enhancement unit. This, in turn, is expected to dent overall results in the December quarter.

How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, Core Laboratories has a subpar Growth Score of D, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Core Laboratories has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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