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Core Laboratories N.V. Earnings Bottom Out

Image source: Getty Images.

The second quarter was mixed, both for the oil sector and for Core Laboratories (NYSE: CLB). For the industry, oil prices rebounded sharply, however, oil and gas activities were still bottoming out, evidenced by a 23% sequential decline in the U.S. rig count. This weakness in activities weighed on Core's financial results, with revenue and earnings both down single digits when factoring in some special items. That said, the company firmly believes that the second quarter marked the bottom of an expected "V-shaped" recovery in both the oil market and its financial results.

Core Labs results: The raw numbers

 Metric

Q2 2016 Actuals

Q2 2015 Actuals

Growth (QOQ)

Revenue

$148.1 million

$153.6 million

-3.6%

Net income

$16.6 million

$15.1 million

10.2%

GAAP EPS

$0.38

$0.35

8.6%

Data source: Core Labs.

What happened with Core Labs this quarter?

Core Lab's quarter was so-so.

  • Core's financial results were right smack in the middle of its guidance range, which projected revenue of $145 million to $150 million and earnings of $0.34 to $0.36 per share. Speaking of earnings, they declined on an adjusted basis by 5% to $0.35 per share due to foreign currency fluctuations and a lower than expected tax rate.
  • The primary driver of the company's guidance-meeting financial results was its reservoir description business. That segment's revenue was up 1.4% to $103 million while operating income increased 5.4% to $19.2 million. One of the drivers is a program with big oil giant ExxonMobil (NYSE: XOM) to evaluate its Stabroek block offshore Guyana. Core has been working with ExxonMobil since it began its analytical program, which helped confirm that it has a world-class discovery on its hands of between 800 million and 1.4 billion barrels of oil equivalent resource potential.
  • Core's other two operating segments, production enhancement and reservoir management, didn't hold up quite as well. Earnings and revenue were down double digits due to the impact of the declining rig count on the production enhancement segment as well as the highly discretionary nature of the company's reservoir management projects.

What management had to say

As Core's management team wrote in the press release about the quarter:

Reservoir description operations posted relatively strong operating margins reflecting ongoing deepwater and international projects while production enhancement outperformed the North American market place where the U.S. land rig count was down 23% on a sequential quarterly basis. Clients continued to show interest in Core's reservoir management regional geological studies encompassing offshore Guyana and Senegal, locations of two recently discovered potential giant oilfields, from which both reservoir fluids and cores are being analyzed by the company.

Core's reservoir description business is driving its financial results at the moment. However, it is starting to see interest in other projects, with it noting that its reservoir management segment could see a boost in the future if, for example, companies such as ExxonMobil participate in a regional geological study encompassing its offshore Guyana discovery.

Looking forward

That potential upside aside, the company remains firmly convinced that better days are ahead. Core's management team reaffirmed that it "continues to anticipate a 'V-shaped' worldwide commodity recovery beginning in the second half of 2016." Furthermore, it noted that one evidence of this is that "several U.S.-based operators have recently announced rig additions."

Because of this positive macro outlook, the company projects that its third-quarter results will increase sequentially over the second quarter. It sees revenue between $148 million to $151 million, with earnings ranging between $0.39 to $0.41 per share.

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Matt DiLallo owns shares of Core Laboratories. The Motley Fool owns shares of and recommends Core Laboratories. The Motley Fool owns shares of ExxonMobil. 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.