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Core Labs Adjusts Credit Facility, Grows Annual Cost Savings

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Core Laboratories N.V. CLB recently strengthened its balance sheet by negotiating an amendment to its credit facility that will increase the maximum acceptable leverage ratio and modify the range of variable interest rates available.

Evidently, this strategic initiative will enhance the company’s financial flexibility substantially to help it tide over the prevalent tough operating landscape. Further, it expands the maximum permitted leverage ratio of 3:1 through the June 2021 fiscal quarter. As of Mar 31, 2020, the company's leverage ratio was 1.93:1.

The amendment also lowered the credit capacity to a total loan worth $225 million from the previous borrowing amount of $300 million. Management believes that the credit facility provides enough cash, leading to lucrative financial deal wins for both the near and the mid-term.

Over the past few months, the oil and gas industry has been in shambles, thanks to the coronavirus pandemic that battered most sectors to date. Global fuel demand is visibly suppressed in the aftermath of large-scale travel ban imposed globally. As a result, the outlook for all industries in the energy sector remains drab.

Despite the economic gloom, Core Labs maintains a strong financial position. By the end of the first quarter of 2020, the company had $13.9 million in cash and cash equivalents.

This Netherlands-based entity also trimmed its dividend to one cent per share due to the coronavirus pandemic that induced a crude price plunge. It plans to utilise the excess free cash flow for lessening its debt burden.

Earlier this year, Core Labs announced steps to "rationalize" its planned capital investment for the current year in response to the sudden oil price slump following the plaguing pandemic’s negative impact on global energy demand. The company further aims to slash its 2020 capex guidance by more than 50% from the prior-year reported figure. Therefore, the company projected cost-containment initiatives of worth $46 million.

However, now it entered the second phase of its cost-cutting measures wherein total annualized cost savings are estimated to be $61 million and quarterly savings, expected to exceed $15 million. This cost-controlling action will be effective the second-quarter end.

The company is scheduled to release second-quarter 2020 results on Wednesday Jul 22, after the closing bell. The Zacks Consensus Estimate for the to-be-reported quarter's earnings is 10 cents per share and for revenues is $121.16 million.

Brief on the Company

Core Labs is an oilfield services company, operating in more than 50 countries. The firm deals with providing reservoir management and production enhancement services to the oil and gas companies. Geographically, the company has its presence in the United States, Europe, Africa, the Middle East, the Asia Pacific, Canada, Russia, Latin/South America among others.

Shares of Core Labs have lost 48.6% in the year-to-date period compared with the industry’s 22% decline.

Zacks Rank & Key Picks

Core Labs currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the energy space are Oceaneering International Inc OII, Gulfport Energy Corporation GPOR and Chesapeake Energy Corporation CHK, each presently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Chesapeake Energy Corporation (CHK) : Free Stock Analysis Report
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Core Laboratories N.V. (CLB) : Free Stock Analysis Report
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