Zacks_Analysts' Blog : Core Laboratories Beats Overall - Analyst Blog

Core Laboratories N.V. (CLB) reported satisfactory fourth quarter and full-year 2010 results, driven by an impressive performance across all the three business units. Earnings per share (EPS), excluding special items, came in at 84 cents, slightly above the Zacks Consensus Estimate of 81 cents. On a year-over-year basis, EPS increased 33.3% from 63 cents in the fourth quarter of 2009.

For full-year 2010, EPS leaped 23.5% year over year to $3.00 but lagged our projection of $3.05.

Total revenue for the quarter was $208.2 million, up 14.6% from $181.6 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 $206 million.

Core Laboratories generated revenue of $794.7 million in 2010 compared with $695.5 million in 2009, marginally ahead of our forecast of $792 million. 

The quarter results were influenced by an accelerating demand for the company’s technologies across deepwater offshore West and East Africa along with lucrative projects in the oil fields of Middle East and Asia Pacific. Strong contributions from the North American region and various joint industry projects all over the globe also boosted Core Laboratories’ performance.

Reservoir Description Segment

Revenues at the Reservoir Description segment (which focuses on international crude oil related projects) inched up 1.1% year over year to $108.7 million. Operating income for the unit (excluding specific items) upped 8.1% year over year to $28.1 million with an operating margin of 26%. The improvement in operating income is attributed to project development in the deepwater regions of offshore Western and Eastern Africa and the Eastern Mediterranean.

Production Enhancement Segment

Core’s Production Enhancement revenues leaped 41.4% year over year to $86.4 million while segment operating income shot up 57.6% to $27.9 million. Operating margin came at an impressive 32% clip, buoyed by utilization of upgraded technology in drilling activities and higher demand for fracture diagnostics services.

Reservoir Management Segment

Revenues from Reservoir Management operations (also internationally focused) remained relatively flat at $13.1 million while the segment operating income escalated 19.5% to $4.9 million, reflecting robust demand for a number of joint projects domestically as well as overseas. Operating margin for the quarter was 38%.

Balance Sheet & Free Cash Flow

As of December 31, 2010, Core had cash and cash equivalents of $133.9 million and debt-to-capitalization of approximately 16%. Capital expenditures for the fourth quarter were $7.9 million.

In 2010, Core generated free cash flow of $178.3 million or $3.70 per diluted share.

Quarterly Dividend

On January 14, 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 February 25, 2011 to shareholders of record as on January 25, 2011.

Guidance

Management expects first quarter 2011 revenues to be approximately $205 million to $210 million, while EPS is likely to be in the range of 82 cents to 84 cents, up approximately 20% year over year.

For 2011, Core Laboratories forecasts total revenue, in an $890.0 million to $910.0 million range, to increase about 12% to 15% from the prior-year level. Earnings will likely be at $3.55 to $3.60 per share.

Our Take

We believe that Amsterdam, Netherlands-based Core Laboratories enjoys an array of profitable projects in key international markets, including the Middle East, Asia Pacific, and East and West Africa, which are capable of sustaining the company’s growth momentum going forward. Additionally, the company’s presence in the emerging shale plays of the U.S. will enable it to reap benefits from the rising drilling and service trends in the industry.

However, our long-term recommendation on the stock remains Neutral, taking into account the company’s vulnerability to the uncertain commodity-price outlook, the soft global economy and technological disruptions. 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).