It has been about a month since the last earnings report for Core Laboratories (CLB). Shares have lost about 19.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Core Laboratories due for a breakout? 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 Delivers Better-than-Expected Q1 Show
Core Laboratories unveiled first-quarter 2019 results, delivering a comprehensive beat. The better-than expected earnings can be attributed to tax benefits resulting from the company’s corporate restructuring.
The oilfield service provider reported adjusted earnings of 44 cents a share, beating the Zacks Consensus Estimate by a penny. The bottom line came toward the upper end of the company’s guided range of 42-45 cents. Revenues of $169.2 million surpassed the consensus estimate of $166 million. The top line was also higher than the company’s guided range of $164-$168 million.
While the results surpassed expectations, both the top and the bottom lines were lower than the prior-year level. The reported earnings and revenues declined 22.8% and 0.5%, respectively, on a year-over-year basis. Lower contribution from both the segments, namely Reservoir Description and Product Enhancement, led to weaker year-over-year results.
Reservoir Description: This segment’s revenues were $103.3 million compared with $100.8 million in first-quarter 2018. Of the total revenues from the segment, more than 80% was generated from the international market. Since the company’s first quarter is seasonally soft, operating income from the segment declined to $6.2 million from $14.7 million in the prior-year period. As such, operating margin came in at 6% vis-à-vis 14.6% a year ago.
Production Enhancement: The segment revenues were approximately $65.9 million compared with $69.2 million in first-quarter 2018. Segment operating income was about $9.9 million in the quarter compared with $17.7 million in the prior-year period, reflecting a decline of 44%. Operating margin of the segment reduced to 15% from the year-ago figure of 25.5%.
Financials and Dividend
As of Mar 31, 2018, Core Labs had cash and cash equivalents of around $13.2 million, and long-term debt (including lease obligations) of approximately $294.9 million. The debt-to-capitalization ratio of the company was 61.1%.
Core Labs generated $25.2 million operating cash in the quarter and capital expenditure totaled $5.1 million. This led to the generation of $20.1 million in free cash flow. Markedly, this marks the 70th consecutive quarter that the company generated FCFs. Apart from returning value to its shareholders through dividends and share buybacks, the free cash flow will also be utilized to repay debt.
The board of directors declared a quarterly cash dividend of 55 cents per share — in line with the previous payout — payable on May 21, 2019 to its shareholders of record as of Apr 26.
Notably, per our model, Core Labs’ trailing 12-month return on equity (ROE) of 59.6% compares favorably with the industry’s 6.4%, portraying management’s efficiency in rewarding shareholders.
Core Labs expects second-quarter 2019 revenues in the $172-$175 million range. Operating income is anticipated in the range of $28.5-$30 million, with operating margin of 17%. The Zacks Rank #2 (Buy) company foresees first-quarter earnings per share in the range of 47-50 cents.
The firm’s deep portfolio of proprietary products and services, along with recovering oil prices on the back of improving supply demand narrative is likely to enhance Core Labs’ prospects.
The company anticipates its international results to improve at a mid-high single-digit rate in 2019. While the international rig count bottomed out in 2016 with no major improvement during 2017 and 2018, things have gradually started looking up for international and deepwater markets. Rising international rig count and final investment decisions on various projects — particularly in the Middle East, Asia-Pacific, North Sea and Russia — are likely to enhance demand for Core Labs’ services.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -5.5% due to these changes.
Currently, Core Laboratories has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.
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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