Core Lab Reports Stellar 4Q

Zacks

Oilfield service company Core Laboratories N.V. (CLB) reported excellent fourth quarter 2012 results, highlighting robust business unit results.

Quarterly earnings per share (EPS) came in at $1.17, surpassing the Zacks Consensus Estimate of $1.13. Comparing year over year, EPS increased 7.0% excluding one-time items.

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

Total revenue for the quarter was $254.5 million, up 4.4% from $243.8 million in the prior-year quarter on the back of strong growth across all segments. The result surpassed the Zacks Consensus Estimate of $247.0 million.

For its fiscal year ended Dec 31, 2012, Core Lab reported per share profits of $4.54, above the Zacks Consensus Estimate of $4.47 and also higher than the 2011 earnings of $3.82 per share. Revenues of $981.1 million were 8.1% above the prior year figure and Zacks Consensus Estimate of $974.0 million.

Reservoir Description Segment

Revenues at the Reservoir Description segment (which focuses on international crude oil related projects) increased 4.3% year over year to $128.8 million in the fourth quarter. Operating income for the unit grew 8.2% year over year to $37.2 million. The improvement is attributed to the company’s increased activities in various offshore field development projects across North Sea, Iraq, Africa, Gabon, Angola, as well as the Middle East, Asia Pacific and the Gulf of Mexico. Use of superior quality technologies also boosted the segment’s performance.

Production Enhancement Segment

Core Laboratories’ Production Enhancement revenues leaped 3.4% year over year to $106.6 million in the quarter but operating income declined 2.7% year over year to $33.3 million. Even with a decline in North American rig count, the result was buoyed by the greater market share of the HTD-Blast and HTD-BlastXL perforating system and high demand for the company’s field-flood and fracture-stimulation diagnostic services.

Reservoir Management Segment

Quarterly revenues from Reservoir Management operations stood at $19.0 million, up 11.2% year over year, while operating income moved up 21.7% year over year to $5.4 million. Operating margin for the quarter was 28%. The primary catalysts for the segment were high-quality study results that have attracted many projects in unconventional reservoirs in North America, in particular the liquids-rich plays in the Duvernay, Cardium, Bakken, Niobrara, Eagle Ford, and Mississippi Lime formations, and unconventional stacked reservoirs in the Permian Basin.

Balance Sheet & Free Cash Flow

As of Dec 31, 2012, Core Laboratories had cash and cash equivalents of $19.2 million. Capital expenditures for the fourth quarter were $7.0 million. The company generated free cash flow of $78.1 million.

Quarterly Dividend

On Jan 11, 2013, Core’s board of directors increased its quarterly common stock dividend by 14.2% to 32 cents per share ($1.28 per share annualized). The new dividend will be paid on Feb 22, to shareholders of record as of Jan 22.

Outlook

Amsterdam, 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 first quarter, Core Lab forecasts total revenue in the $240 million to $250 million range. Earnings per share will likely be between $1.12 and $1.18 per share.

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/or expropriation of assets, exchange rate risks, terrorism and political/civil sentiment in critical countries like Iran, Iraq, Nigeria and Venezuela.

Additionally, the company relies on its ability to develop and acquire essential products and technologies that drive its operational performance and growth. If these technologies and/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.

But there are certain other companies in the oilfield service industry that are expected to perform well in the coming one to three months. These include Compressco Partners, L.P. (GSJK) with a Zacks Rank #1 (Strong Buy) and Hornbeck Offshore Services Inc. (HOS) and RPC, Inc. (RES) – both with Zacks Rank #2 (Buy).
 

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