Why Is Core Laboratories (CLB) Up 31.8% Since Last Earnings Report?

It has been about a month since the last earnings report for Core Laboratories (CLB). Shares have added about 31.8% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Core Laboratories Q1 Earnings Fall Short on Activity Decline

Core Laboratories recently reported first-quarter 2020 results wherein adjusted earnings of 31 cents a share fell short of the Zacks Consensus Estimate of 34 cents. Moreover, the profit declined from the year-ago quarter’s earnings of 44 cents. This downside was caused by a steep decline in U.S. onshore activity during the quarter.

However, this oilfield service provider delivered adjusted revenues of $152.4 million, marginally beating the Zacks Consensus Estimate of $152 million owing to strength in its reservoir fluids business. But the top line fell from the year-ago quarter’s revenues of $169.2 million.

Segmental Performance

Reservoir Description: Revenues slid 0.6% to $102.7 million from $103.3 million in first-quarter 2019, thanks to typical seasonal declines and operational disturbances related to the coronavirus pandemic. However, adjusted operating income rose 11.4% year over year to $15.6 million as Core Labs’ highly-specialized reservoir fluids services’ demand was stable despite the depressed commodity price environment. Further, operating margin inched up to 15% from 14% in the prior-year quarter.

Production Enhancement: Revenues were $49.7 million compared with $65.9 million in first-quarter 2019. Segmental operating income was $3.8 million in the quarter, down 69.4% from the year-ago quarter’s level of $12.4 million. Operating margin shrank to 8% from the year-ago quarter’s 19%. This segmental underperformance is due to a sharp fall in U.S. onshore well completion activity and coronavirus-induced international product shipment troubles.

Financials and Dividend

As of Mar 31, 2020, Core Labs had cash and cash equivalents of $13.9 million and long-term debt (including lease obligations) of $302.4 million. The company’s debt-to-capitalization ratio was 81.2%.

In the reported quarter, Core Labs generated $22 million in operating cash and its capital expenditure totaled $3.3 million. This, in turn, led to the $18.7-million free cash flow (FCF) generation. Markedly, this is the 74th consecutive quarter of the company’s FCF recognition.

With an aim to preserve its strong balance sheet and reduce the debt burden, last month, the board of directors declared a quarterly cash dividend of a cent per share, down from the previous dividend of 25 cents. This dividend cut has been effective the second quarter onward.

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Considering the prevalent business uncertainty emanating from the coronavirus outbreak, the company was unable to provide guidance for the second quarter but sees an improving outlook for project work and international products shipment after June. Core Labs expects factors associated with the global crude oil market to create a tighter space in the remainder of 2020.

Ramped-down core projects activity is likely to persist globally and in North America during the second quarter. The company's clients are adding more importance to executing their operations amid such exigency. International activity is anticipated to decrease, though not as severely as the year-over- year anticipated decline in U.S. onshore activity.

Core Labs announced steps to "rationalize" its planned capital spending for the current year in response to the sudden oil price slump following the coronavirus pandemic’s adverse impact on global energy demand. This Netherlands-based company plans to slash its 2020 capex guidance by more than 50% from the prior-year figure. Further, it anticipates annual corporate and operating cost reductions by $46.1 million, which comprises a cutback in the senior executive and employee compensation.   

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -45.26% due to these changes.

VGM Scores

Currently, Core Laboratories has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. 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 B. 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. Notably, Core Laboratories has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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