Core Laboratories N.V. (CLB) reported satisfactory third quarter 2010 results, driven by an impressive performance across all the three business units. Earnings per share came in at 79 cents, slightly above the Zacks Consensus Estimate of 78 cents. On a year-over-year basis, the result increased 18% from 67 cents in the third quarter of 2009.
Total revenue for the quarter was $199.2 million, up 19% from $167.8 million in the prior-year quarter, aided by a 28% growth in U.S revenues and 10% increase in international revenues. However, the company-reported revenue figure failed to match up the Zacks Consensus Estimate of $208 million.
The quarter results were influenced by an accelerating demand for the company’s technologies across Middle East, Asia-Pacific and deepwater offshore West Africa. Various expansion projects of liquid-rich plays in the Bakken, Eagle Ford and Niobrara formations in the North American region also boosted Core Laboratories’ performance.
Reservoir Description Segment
Revenues for the Reservoir Description segment (which focuses on international crude oil related projects) inched up slightly (by 5%) year over year to $106.5 million, given that the company witnessed a modest gear up in international crude-oil associated activities and three new reservoir fluid facilities were completed, which helped in coping up with the growing demand for large-scale core analysis and reservoir fluids phase-behavior studies. Operating income for the unit upped 4.6% year over year to $28.0 million with an operating margin of 26%.
Production Enhancement Segment
Core’s Production Enhancement revenues leaped 45.2% year over year to $79.0 million while segment operating income shot up 79.5% to $26.3 million. Operating margin came at an impressive 33%. The growth in the segment’s results is attributed to the busy North American market engaged in the development of horizontal wells of gas-shale and oil-shale reservoirs.
Reservoir Management Segment
Revenues from Reservoir Management operations (also internationally focused) spiked up 15.2% year over year to $13.7 million while the segment operating income escalated 58.2% to $5.5 million, mainly attributable to the robust demand for a number of joint projects and the company’s continued focus on the detailed reservoir studies for several other concerns. Operating margin stood at an all-time quarterly high of 40%.
Balance Sheet & Free Cash Flow
As of September 30, 2010, Core had cash and cash equivalents of $168.0 million and net debt-to-capitalization of approximately 10%.
During the quarter, Core generated free cash flow of $50.8 million or $1.04 cents per diluted share. Capital expenditures for the third quarter were $7.0 million.
Quarterly Dividend
On October 12, 2010, Core’s board of directors announced a quarterly cash dividend of 6 cents per share of common stock, payable on November 24, 2010, to shareholders of record on October 22, 2010.
Guidance
Management expects fourth quarter 2010 revenues to be approximately $205 million while earnings per share are likely to be in the range of 80 cents to 82 cents.
Our Take
Core Labs’ better-than-expected results over the last three quarters leave us optimistic about the company’s growth momentum going forward. With a market leading position in reservoir optimization and an intensive cradle of proprietary products and services, we expect the company to move ahead of its peers.
However, our long-term recommendation on the stock remains Neutral, taking into account the uncertain commodity-price outlook, the soft global economy and the eroding oil and gas demand.
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