A month has gone by since the last earnings report for Core Laboratories (CLB). Shares have added about 11.5% 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 the most recent earnings report in order to get a better handle on the important drivers.
Core Laboratories’ Q3 Earnings and Sales Beat Estimates
Core Laboratories reported third-quarter 2024 adjusted earnings of 25 cents per share, which beat the Zacks Consensus Estimate of 21 cents. The bottom line also increased from the year-ago quarter’s reported figure of 22 cents. This can be attributed to better-than-expected performance from the Reservoir Description and Production Enhancement segments.
This oilfield service provider’s operating revenues of $134.4 million beat the Zacks Consensus Estimate of $133 million by 1.1%. The top line increased 7.5% from the year-ago quarter’s $125 million.
As of Sept. 30, 2024, Core Laboratories' net debt (defined as long-term debt minus cash and cash equivalents) was $120.5 million, reflecting a decrease of $11.8 million during the quarter. The company’s leverage ratio (calculated as total net debt divided by adjusted EBITDA) for the past four quarters improved to 1.47, down from the previous quarter's 1.66.
Core Labs’ adjusted revenues of $128.4 million beat the Zacks Consensus Estimate of $126 million by 1.9%. The top line also rose from the year-ago quarter’s recorded figure of $115.3 million. This can be attributed to the Reservoir Description segment’s impressive performance.
Segmental Performance
Reservoir Description: Revenues in this segment increased about 3.5% to $88.8 million from $85.1 million in the third quarter of 2023. Additionally, the top line beat our projection of $88 million. Operating income increased from $13 million in the year-ago period to $16.5 million and beat our estimate of $10.4 million.This was due to increased demand for reservoir rock and fluid analysis in international and U.S. markets.
Production Enhancement: This segment’s revenues increased 13.4% to $45.6 million from $40.2 million in the prior year quarter. Moreover, the top line marginally beat our estimate of $45.2 million. Operating income of $3.2 million missed our projection of $4.4 million. However, the metric increased from the year-ago quarter’s reported profit of $1.5 million.
Financials and Dividends
As of Sept. 30, 2024, this company had cash and cash equivalents of $21.5 million and long-term debt of $139.9 million. CLB’s debt-to-capitalization was 35.3%. Operating cash totaled $13 million, while capital expenditure amounted to $3 million. This led to a positive free cash flow of $10 million.
CLB’s board of directors approved a cash dividend of a cent per share on the company's common stock, payable on Nov. 25, 2024, to its shareholders of record as of Nov 4.
Outlook
For the fourth quarter of 2024, CLB expects revenues to range from $128.5 million to $135.5 million. Operating income is projected to be between $14.8 million and $17.7 million, with earnings per share expected to be between 20 cents and 25 cents.
Revenues for the Reservoir Description segment are anticipated to be between $87.5 million and $90.5 million, with operating income ranging from $13.4 million to $14.9 million.
Revenues for the Production Enhancement segment are expected to be between $41 million and $45 million, with operating income projected between $1.3 million and $2.7 million.
The company anticipates an effective tax rate of 20% for the fourth quarter. This guidance is based on projections for underlying operations and excludes any gains or losses from foreign exchange. Core Lab anticipates maintaining positive free cash flow in the upcoming quarters.
CLB expects a multi-year recovery in the international market, driven by underinvestment, increased focus on energy security and rising demand for crude oil , which should support growth in 2025. To align with this outlook, management remains focused on investing in technology and pursuing growth opportunities while staying involved in long-term international projects.
The company expects crude oil demand to rise 1-1.6 million barrels per day in 2025, according to estimates from the IEA, EIA and OPEC+. This increase is in addition to the natural decline in production from existing fields, making continued investment in onshore and offshore oil fields necessary.
In the short term, CLB anticipates that crude oil markets will be volatile due to global economic and geopolitical uncertainties. However, as international project activity grows, long-term projects in the Middle East, South Atlantic Margin, certain parts of Asia Pacific and West Africa should boost demand for Core Lab's services and products.
While Core Lab expects the U.S. land activity to decline in the fourth quarter of 2024, it should return to similar levels year over year in 2025. Current challenges include recent Exploration and Production consolidations and low natural gas prices.
For the fourth quarter of 2024, guidance for both segments accounts for delays caused by weather events in the Gulf of Mexico. Core Lab projects that Reservoir Description's revenues will remain flat or increase slightly, while Production Enhancement is projected to continue the drop in U.S. frac spread counts, along with the usual year-end slowdown in onshore completion activity.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
At this time, Core Laboratories has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, 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 C. 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 this revision indicates a downward shift. It's no surprise Core Laboratories has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
Performance of an Industry Player
Core Laboratories is part of the Zacks Oil and Gas - Field Services industry. Over the past month, Schlumberger (SLB), a stock from the same industry, has gained 6.8%. The company reported its results for the quarter ended September 2024 more than a month ago.
Schlumberger reported revenues of $9.16 billion in the last reported quarter, representing a year-over-year change of +10.2%. EPS of $0.89 for the same period compares with $0.78 a year ago.
For the current quarter, Schlumberger is expected to post earnings of $0.91 per share, indicating a change of +5.8% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #4 (Sell) for Schlumberger. Also, the stock has a VGM Score of B.
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