Core Lab Posts Stellar 1Q Earnings

Zacks

Oilfield service company, Core Laboratories N.V. (CLB) reported excellent firstquarter 2013 results, highlighting global deepwater hydrocarbon developments.

Quarterly earnings per share (EPS) came in at $1.22, surpassing the Zacks Consensus Estimate of $1.15. Comparing year over year, EPS increased 8.0% excluding one-time items.

The company’s consistent emphasis on international crude-oil developments (mainly in deepwater), its global high-grading unconventional crude oil and natural gas opportunities and improvements in operations in North America complemented the results.

Total revenue was $260.9 million, up 11.4% from $234.2 million in the prior-year quarter buoyed by strong growth across all segments. The top line also breezed past the Zacks Consensus Estimate of $245.0 million.

Reservoir Description Segment

Revenues from the Reservoir Description segment (which focuses on international crude oil related projects) increased 7.9% year over year to $125.2 million in the first quarter. Operating income for the unit grew 7.5% year over year to $34.9 million. Operating margin was 28%. The improvement was attributed to Core Lab’s focus on global deepwater developments, mainly Lower Tertiary in the Gulf of Mexico. The use of superior quality technologies also boosted the segment’s performance.

Production Enhancement Segment

Core Labs’ Production Enhancement revenues grew 11.1% year over year to $107.4 million in the quarter and operating income increased 2.1% year over year to $34.2 million. Operating margin was 32%.  Even with a decline in North American rig count, the results were buoyed by the greater market share of the HTD-Blast and HTD-BlastXL perforating systems and high demand for the company’s fracture-stimulation diagnostic services.

Reservoir Management Segment

Quarterly revenues from Reservoir Management operations were $28.3 million, up 32.3% year over year, while operating income moved up 24.4% year over year to $9.8 million. Operating margin was 35%. The primary catalysts for the segment were high-quality study results that have attracted many projects. Core Lab has undertaken a number of reservoir analysis ventures in onshore and offshore plays, which boosted the segment’s results.

Balance Sheet & Free Cash Flow

As of Mar 31, 2013, Core Lab had cash and cash equivalents of $22.9 million. Capital expenditures for the first quarter were $8.4 million. The company generated free cash flow of $59.8 million.

Quarterly Dividend

On Apr 15, 2013, Core Lab’s board of directors declared a quarterly common stock dividend of 32 cents per share ($1.28 per share annualized). The dividend will be paid on May 24, to shareholders of record as of Apr 26.

Outlook

Amsterdam, the Netherlands-based Core Lab provided a positive outlook for 2013, reflecting the favorable Brent crude pricing along with the arrival of additional deepwater drilling rigs. These will enable the company to walk into more new projects and operate in other rich oil and gas acreages. Core Lab also plans to use advanced technologies and add services aimed at boosting the daily production and hydrocarbon recovery rates.

For the second quarter, Core Lab forecasts total revenue in the $264 million to $269 million range. Earnings per share will likely be between $1.29 and $1.36. For 2013, total revenue is expected in the $1,060 million to $1,075 million bracket and earnings per share will likely be between $5.06 and $5.26.

Zacks Rating

The company currently retains a Zacks Rank #4 (Sell), implying that it is expected to underperform the broader U.S. equity market over the next one to three months.

Core Lab has operations in over 50 countries, with approximately 50% of its total revenue coming from international markets. As such, the company is exposed to risks associated with doing business abroad. Such risks include embargoes and expropriation of assets, exchange rate risks, terrorism as well as political/civil sentiment in critical countries like Iran, Iraq, Nigeria and Venezuela.

Additionally, Core Lab relies on its ability to develop and acquire essential products and technologies that drive its operational performance and growth. If these technologies or products become obsolete or cannot be brought to market in a timely and competitive manner, the company might face severe operational and financial dilemmas.

However, certain other companies in the oilfield service industry are expected to perform well in the coming one to three months. These include Compressco Partners L.P. (GSJK) and Exterran Partners L.P. (EXLP) with a Zacks Rank #1 (Strong Buy) as well as Exterran Holdings Inc. (EXH) with a Zacks Rank #2 (Buy).
 

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