Why Is Core Laboratories (CLB) Down 28.1% Since Last Earnings Report?

It has been about a month since the last earnings report for Core Laboratories (CLB). Shares have lost about 28.1% 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 Labs Posts Weaker Y/Y Earnings and Sales

Core Laboratories posted adjusted earnings of 46 cents a share were in line with the Zacks Consensus Estimate. However, the bottom line, which was lower than the company’s guided range of 47-50 cents, declined from the year-ago profit of 59 cents a share. Soft contribution from the Product Enhancement segment impacted the results.

The oilfield service provider reported adjusted revenues of $169 million, lagging the consensus estimate of $174 million. The top line was also lower than the company’s guided range of $172-$175 million, owing to the divestment of a non-strategic business in Asia-Pacific.

Segmental Performance

Reservoir Description: This segment’s revenues were $105.6 million compared with $102.1 million in second-quarter 2018. Of the total revenues from the segment, more than 80% was generated from the international market. Increased international and offshore activities drove the segment’s revenues and operating profits. Operating income from the segment rose 7.6% y/y to $15.8 million. As such, operating margin came in at 15% vis-à-vis 14.4% a year ago.

Production Enhancement: The segment’s revenues were approximately $63.4 million compared with $73.4 million in second-quarter 2018. Segment operating income was about $10.4 million in the quarter, down 43.4% from the year-ago level of $18.4 million in the prior-year period. Operating margin of the segment reduced to 16.4% from the year-ago figure of 25.1%.

Financials and Dividend

As of Jun 30, 2019, Core Labs had cash and cash equivalents of around $12.5 million, and long-term debt (including lease obligations) of approximately $290 million. The debt-to-capitalization ratio of the company was 60.1%.

In the quarter, Core Labs generated $17.1 million in operating cash and capital expenditure totaled $7 million. This led to the generation of $10.1 million in free cash flow (FCF). Markedly, this is the 71st consecutive quarter that the company has generated FCF.

The board of directors declared a quarterly cash dividend of 55 cents per share — in line with the previous payout — payable on Aug 12, 2019 to its shareholders of record as of Jul 22.

Notably, per our model, Core Labs’ trailing 12-month return on equity of 51.19% compares favorably with the industry’s 5.48%, portraying management’s efficiency in rewarding its shareholders.

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Core Labs expects third-quarter 2019 revenues in the $171-$175 million range. Operating income is anticipated in the range of $30.6-$32.6 million, with operating margin of 17%. The company foresees third-quarter earnings per share in the range of 48-52 cents.

Improving crude oil market fundamentals are likely to drive international activities, in turn boosting the prospects of Core Labs’ Reservoir Description unit. While the firm’s deep portfolio of proprietary products and services, and increased international activities bode well, disciplined capital approach of U.S. energy explorers may limit overall results in third-quarter 2019. Notably, the company expects U.S. onshore completion activity level to remain unchanged sequentially.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

Currently, Core Laboratories has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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 these revisions 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.

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