Core Laboratories N.V. (CLB) reported impressive first quarter 2011 results, driven by commendable performances across all the three business units.
Earnings per share (EPS), excluding special items, came in at 77 cents, marginally beating the Zacks Consensus Estimate of 76 cents. Moreover, EPS increased 12% from 69 cents in the first quarter of 2010.
Total revenue for the quarter was $206.7 million, up 9.8% from $188.3 million in the prior-year quarter, aided by strong growth in all business units. The company-reported revenue figure also surpassed the Zacks Consensus Estimate of $205 million.
The quarter’s results were influenced by various development projects across deepwater offshore West Africa, Middle East and Asia Pacific regions. Strong contributions from the North American region and a new joint industry venture in East Africa also boosted Core Laboratories’ performance.
Reservoir Description Segment
Revenues at the Reservoir Description segment (which focuses on international crude oil related projects) upped 3% year over year to $107.6 million. Operating income for the unit grew 5% year over year to $26.4 million with an operating margin of 25%. The improvement is attributtable to extensive core research and reservoir fluids characterization inspection in offshore West Africa, the Middle East and Asia-Pacific areas.
Production Enhancement Segment
Core’s Production Enhancement revenues leaped 19% year over year to $82.1 million while segment operating income climbed 11% year over year to $23.3 million. Operating margin came at an impressive 28% clip, buoyed by the greater market share of HTD Blast perforating system and continued expansion of international projects, offshore Africa.
Reservoir Management Segment
Revenues from Reservoir Management operations (also internationally focused) was $17.0 million, up 10% year over year while the segment operating income escalated 19% year over year to $6.7 million, reflecting the commencement of a new joint-industry project in East Africa. Operating margin for the quarter was 39%.
Balance Sheet, Free Cash Flow, & Share Buyback
As of March 31, 2011, Core had cash and cash equivalents of $80.0 million. Capital expenditures for the first quarter were $4.4 million and the company bought back 550,765 shares for $49.8 million.
During the quarter, Core generated free cash flow of $53.6 million or $1.09 per diluted share.
Quarterly Dividend
On April 18, 2011, Core’s board announced a cash dividend of 25 cents per share (amounting to an annualized payout of $1.00 per share) of common stock, payable on May 27, 2011 to shareholders of record on April 28, 2011.
Guidance
The company expects second quarter 2011 revenues of approximately $215 million to $220 million and EPS in the range of 84 cents to 88 cents, up approximately 15% year over year.
For 2011, Core Laboratories forecast total revenue in an $890.0 million to $910.0 million range, up 12% to 15% from the prior-year level. Earnings will likely be $3.55 to $3.60 per share.
Management is apprehensive that performance in the second quarter will likely be bruised by the political upheaval in North Africa and parts of the Middle East. Core Laboratories targets to start working on the deepwater projects in the Gulf of Mexico in the back end of the next quarter. Rig count is expected to remain flat in North America and international activities to ramp up in the second half of 2011.
Our Take
We believe that Amsterdam, Netherlands-based Core Laboratories enjoys a leadership position in the reservoir optimization niche, along with its global footprint and deep portfolio of proprietary products and services.
However, our long-term recommendation on the stock remains Neutral, given the company’s vulnerability to gas/oil price volatility, geo-political risks, competition and the advent of new technologies. The company faces competition from peers, such as Baker Hughes Incorporated (BHI) and Halliburton Company (HAL).
Core Laboratories currently retains a Zacks #3 Rank (short-term Hold rating).
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