Core Laboratories N.V. Earnings Hold Up, but Its Outlook Bottoms Out

Oil prices were awful during the third quarter, plunging more than 20%. That would lead us to believe that oil-field company Core Laboratories would be in for a rough quarter. However, that's not what we see in its results, which were released Wednesday after markets closed. Instead, it outperformed oil-field service rivals like Schlumberger by reporting operating income and margins that increased sequentially.

Core Labs results: The raw numbers

Q3 2015 Actuals Q2 2015 Actuals Growth (QOQ)
Revenue $197.3 million $204.0 million -3%
Net Income $35.4 million $35.4 million flat
EPS $0.83 $0.82 1%

Data source: Core Labs.

What happened with Core Labs this quarter?

Core Labs' third-quarter results showed a lot of resilience in the midst of a tough oil market:

  • Its revenue description business posted revenue of $117.9 million in the quarter, which was down just 1% from last quarter. However, operating income increased thanks to a sequential improvement in margins of 60 basis points.
  • The production enhancement division didn't fare quite as well with revenue slipping 8% sequentially to $64.9 million. Meanwhile, that segment's operating income slipped 15% as a result of a decline in margins of 170 basis points.
  • The highlight on the quarter was its reservoir management segment. While revenue was flat at $14.5 million, both net income and margins increased sharply. Driving this increase was the completion of several large projects.
  • Another highlight was free cash flow, which came in at $37.5 million for the quarter and exceeded net income for the fourth straight quarter.
  • With that cash flow, Core Labs continued its generous shareholder distributions, paying out $23.4 million in dividends and buying back $28.7 million in shares. Those buybacks pushed the company's share count down to a 17-year low.

What management had to say

In describing the company's major accomplishment during the quarter, management pointed out in the earnings release that:

In contrast to major oilfield service companies that have already reported, Core Labs' third-quarter 2015 net and operating income and operating margins, ex-item, all increased sequentially over second quarter 2015 levels as a result of the Company's cost reduction, lab automation and multiskilling programs.

That's a real feather in its cap because most other oil-field services companies are struggling amid the downturn in oil prices , which is putting pressure on service and product prices and therefore oil-field service margins. Industry leader Schlumberger, for example, saw its pre-tax operating income drop 11% sequentially while its pre-tax operating margin dropped by 101 basis points. This contrast shows the fundamental difference between Core Labs' business model and its competitors. That difference relates to the fact that many of its products and services are proprietary or patented and therefore immune to pricing pressure.

Looking forward

One area where Core Labs fell short was in its outlook. It projects that revenue will fall by 9% sequentially to $180 million. Furthermore, fourth-quarter earnings are also expected to slip to a range of $0.63 to $0.67 per share.

Core Labs believes that the fourth quarter could represent the bottom for its financial results because it predicts a recovery in both oil prices and oil-field service activity levels in 2016. However, it is also worth pointing out that this outlook differs considerably from Schlumberger's, which also does see oil prices rising next year, but doesn't expect oil-field service activity or service pricing improving until 2017.

While that outlook difference is worth noting, given Core Labs' proprietary products its business could very well improve faster than the rest of the oil-field service market.

The next billion-dollar iSecret

The world's biggest tech company forgot to show you something at its recent event, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here .

The article Core Laboratories N.V. Earnings Hold Up, but Its Outlook Bottoms Out originally appeared on

Matt DiLallo owns shares of Core Laboratories. The Motley Fool owns shares of and recommends Core Laboratories. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

Copyright © 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Other Topics


Latest Markets Videos

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More