The Rising Influence of Rising Affluence

[DewDiligence]

CLB Reports 3Q12 Results

[This PR was issued last Wednesday after the close; the CC was held on Thursday morning. 3Q12 non-GAAP came in at $1.13, at the high-end of the reduced range of $1.09-1.13 in the 10/1/12 pre-announcement (#msg-80106286), but well below the original 3Q12 guidance of $1.17-$1.25 given in July (#msg-77718792). Actual 3Q12 EPS was +13% vs 3Q11 and -3% relative to 2Q12.

3Q12 revenue came in at $245M (the highest ever for any third quarter) at the high end of the reduced-guidance range of $240-245M issued on 10/1/12, but well below the original 3Q12 guidance of $250-260M given in July. 3Q12 revenue was +6% vs 3Q11 and was -1% vs 2Q12. (For CLB, the second quarter is seasonally stronger than the third quarter due to revenue from Canadian oilsands projects, which peak in Q2.)

What about guidance for 4Q12? The 10/1/12 PR was vague on this matter, so investors assumed the worst and clocked the stock by almost 20% (#msg-80139726). Now, the 4Q12 guidance is non-GAAP EPS of $1.10-1.17 and $240-245M of revenue—i.e. numbers rather similar to 3Q12.

Since the 10/1/12 bomb, CLB has risen about 5%, and it is slightly up since reporting the actual 3Q12 results on 10/17/12. Beating lowered guidance is the easiest game on Wall Street, so CLB doesn’t deserve credit for accomplishing *that*. On the other hand, the sky does not appear to be falling and CLB’s 2013 outlook (below) is generally bullish with a promise of robust free cash flow, a dividend increase, and continued stock buybacks. The share price is down 27% from its all-time high reached in May 2012, and hence the valuation is more modest even after assuming a slower growth rate that persists for some time. Moreover, there has been no recent insider selling.

My overall assessment is that CLB remains a hold. Comments welcome.]

http://finance.yahoo.com/news/core-lab-reports-q3-2012-214000818.html

›17-Oct-2012 5:42 pm ET

Core Lab Reports Q3 2012 EPS Of $1.14, $1.13 Ex-Items; Q3 2012 Ops Margins At 30% Ex-Items; YTD FCF Reaches $128 Million

AMSTERDAM, Oct. 17, 2012 /PRNewswire/ -- Core Laboratories N.V. (NYSE: "CLB US" and NYSE Euronext: "CLB NA") reported third quarter 2012 net income of $54,403,000 and earnings per diluted share ("EPS") of $1.14. Excluding the settlement of a business interruption claim, the Company's operations earned $1.13, an increase of 13% over year-earlier EPS totals, ex-items. Third quarter 2012 revenue increased 6% over third quarter 2011 levels to $245,428,000, despite the U.S. rig count decreasing approximately 6% since the end of the second quarter 2012 and an international rig count that has been flat from year end 2011. Third quarter 2012 operating income increased to $73,747,000, 6% over year-ago quarterly levels, ex-items, yielding operating margins of 30%.

Free cash flow ("FCF"), defined as cash from operations in excess of capital expenditures, reached $41,996,000 for the quarter. During the quarter, Core returned over $46,443,000 to its shareholders by repurchasing 283,513 shares for $33,191,000 and paying dividends of $13,252,000. Since 2 October 2012, the Company has repurchased an additional 422,600 shares at an average price of $101.87.

The improved year-over-year third quarter results reflect the Company's continued focus on international crude-oil related developments and unconventional oil plays in North America. Increased demand for Core's proprietary and patented fracture and field-flood diagnostics technology and for the Company's HTD Blast™ and HTD Blast XL™ perforating system technology also bolstered results. Additional clients were added to Core's joint industry projects in Eagle Ford, Niobrara, and Utica formations and unconventional reservoirs in the Midland Basin. Internationally, the Company's newest joint industry project, Equatorial Basins of Eastern South America, makes six such studies available for reservoirs offshore Brazil.

Compared with the first nine months of 2011, Core's revenue increased 9% to $726,625,000; net income increased 23% to $161,270,000; and EPS was up 25% to $3.38. Operating margins for the first nine months of 2012 were 30%, up 370 basis points from year-earlier levels, while FCF reached $128,000,000.

As reported the previous twelve quarters, the Board of Supervisory Directors (the "Board") of Core Laboratories N.V. has established an internal performance metric of achieving a return on invested capital ("ROIC") in the top decile of the service companies listed as Core's peers by Bloomberg Financial. Based on Bloomberg's calculations for the latest comparable data available, Core's ROIC was the highest in its oilfield services Comp Group. Moreover, the Company had the highest ROIC to Weighted Average Cost of Capital ("WACC") ratio in the Comp Group.

Segment Highlights

Core Laboratories reports results under three operating segments: Reservoir Description, Production Enhancement, and Reservoir Management.

Reservoir Description

In the third quarter 2012, Core's Reservoir Description operations posted record revenue for any third quarter of $124,156,000 [51% of overall revenue], an increase of 4% over year-earlier quarterly totals. As has been the case in four of the past five years, third quarter Reservoir Description revenue was down sequentially from second quarter totals because of the large amount of revenue the Company generates from Canadian oil sand projects, which peaks in the second calendar quarter. Operating income increased 15% to $36,780,000, while operating margins expanded to 30%, more than 300 basis points over year-ago levels ex-items. The segment's revenue growth and margin expansion occurred in an operating environment of a flat international rig count. Increasing market penetration and improved utilization of higher technology services drove this market place outperformance.

The Company continued to receive thousands of feet of reservoir core and hundreds of reservoir fluid samples from some of the largest oil field development projects worldwide. These include deepwater developments offshore Brazil, Angola, Gabon, Nigeria, and Ghana. The rock and fluids data sets will be integrated to ensure that operators can maximize daily production and ultimate hydrocarbon recoveries.

In the Middle East, Core continues to work in fields in both southern and northern Iraq, Kuwait, Saudi Arabia, Qatar, and the United Arab Emirates. Many of these projects are phase behavior studies of reservoir oils and natural gases for enhanced oil recovery operations.

In the deepwater Gulf of Mexico, Core continues to pioneer technologies related to ever-increasing reservoir pressures and temperatures in ultra-deep field developments. Currently, the Company is able to sample reservoir fluids at 25,000 psi and 335 degrees Fahrenheit (168 degrees Celsius). Core Lab is the first company to have these capabilities and is working on technologies to conduct fluid phase behavior studies at 30,000 psi and 400 degrees Fahrenheit (204 degrees Celsius).

In addition, the Company continues to lead the industry in mercury-free Pressure-Volume-Temperature (PVT) capabilities. As directed by major clients including Total and BP, among others, Core continues to install state-of-the-art, automated mercury-free PVT cells in its major reservoir fluids facilities around the globe. Currently with ten cells operational in Aberdeen, Abu Dhabi, Kuwait, Houston, and Broussard, the Company has three more cells to be delivered in the fourth quarter of 2012 and an additional three cells on order for early 2013 deployment.

During the quarter, the Company completed the 100,000 plus square foot expansion of its core analysis facilities in Houston to accommodate the high volume of work received from the deepwater Gulf of Mexico and other deepwater reservoirs around the globe. The expansion increased the Company's capacity to perform reservoir-condition testing and added thirteen additional core layout and viewing rooms.

Production Enhancement

Production Enhancement operations reported third quarter 2012 revenue of $100,871,000 [41% of overall revenue], up 4% year over year, and operating income of $31,316,000, excluding the business interruption payment. Operating margins were 31%. Moreover, and more importantly, these results were sequentially better than second quarter 2012 results, despite the U.S. rig count decreasing approximately 6% sequentially from second quarter 2012 levels, reflecting the positive impact of the increasing market penetration of Core's technology, especially applied to unconventional reservoir development.

The third quarter results reflected increased demand for the Company's proprietary and patented hydraulic fracture and field-flood diagnostic technologies. SpectraChem® and Zero Wash® tracers were employed by clients stimulating long, multi stage horizontal wellbores in unconventional plays in North America, as well as in China, Poland, and Australia. Similar projects were conducted in conventional reservoirs offshore Africa, Oman, and the eastern Mediterranean. Internationally, several field-flood projects continued to use SpectraFlood™ tracers to determine the effectiveness of injected fluids, including recently developed fields in deepwater offshore West Africa, the North Sea, and onshore Colombia.

Core's recently introduced HTD Blast™ and new HTD Blast XL™ technologies, used to more effectively and efficiently perforate unconventional shale reservoirs, remained in high demand. In one wellbore, the HTD Blast XL™ system was used to complete 27 different zones, which ultimately led to higher production rates while decreasing completion costs.

Reservoir Management

Reservoir Management operations posted third quarter 2012 revenue of $20,401,000 [8% of overall revenue], up 45% over year-earlier quarterly totals, and operating income of $6,029,000. Operating margins were 30%.

Core's Eagle Ford Shale Study continues to add industry participants as the Company analyzes thousands of feet of core, primarily from the oil-prone areas in southwestern Texas. Industry interest remains strong in unconventional oil reservoirs in the Permian basin, and the Company has received dozens of cores, including cores from the Wolfcamp section whose results will be included in the Company's Midland Basin Study. The Midland Basin Study now has 28 industry participants.

Internationally, Reservoir Management, in its continuing cooperation with Petrobras, now has six studies detailing the petroleum geology and reservoir potential of onshore and offshore Brazil. Core's newest study, Equatorial Basins of Eastern South America, contains cores and cutting samples from multiple sedimentary basins in shallow and deepwater areas.

In addition, Core's Deepwater Campos Basin, Santos Basin, Cretaceous Carbonates of the Southeastern Margin, and Pre-Salt Phase II Brazil studies now have over 30 industry participants. The combination of these studies contains the most comprehensive data sets available of the Cretaceous-aged carbonate sequences that make up the reservoir complex of deepwater pre-salt giant and super-giant field developments. Petrobras remains Core's largest and most important national oil company client.

Free Cash Flow, Share Repurchases, Dividends, Capital Returned To Shareholders

During the third quarter of 2012, Core Laboratories generated $51,256,000 of cash from operating activities and had capital expenditures of $9,260,000, yielding $41,996,000 in FCF. For the quarter, Core returned $46,443,000 to its shareholders in the forms of share repurchases and dividends. The FCF was used to pay $13,252,000 in cash dividends and to repurchase 283,513 shares at a cost of $33,191,000. The average price paid per share since the inception of the repurchase program is approximately $25.77. Year-over-year, Core decreased its average diluted quarterly share count by approximately 1%, from 48,030,000 to 47,528,000.

On 10 July 2012, the Company's Board announced a quarterly cash dividend of $0.28 per share that was paid in the third quarter of 2012. This amount represented a 12% increase over the quarterly dividends of $0.25 per share that were paid in 2011, and when paid each quarter of 2012, will equal a payout of $1.12 per share of common stock. The quarterly $0.28 per share cash dividend was paid on 20 August 2012 to shareholders of record on 20 July 2012. Dutch withholding tax was deducted from the dividend at the rate of 15%.

On 9 October 2012, the Board announced a cash dividend of $0.28 per share of common stock to be paid on 20 November 2012 to the shareholders of record on 19 October 2012. Dutch withholding tax will be deducted from the dividend at the rate of 15%.

Return On Invested Capital

As reported in the previous twelve quarters, the Company's Board has established an internal performance metric of achieving an ROIC in the top decile of the oilfield service companies listed as Core's peers by Bloomberg Financial. The Company and its Board believe that ROIC is a leading performance metric used by shareholders to determine the relative investment value of publicly traded companies. Further, the Company and its Board believe shareholders will benefit if Core consistently performs in the highest ROIC decile among its Bloomberg peers. According to the latest financial information from Bloomberg, Core Laboratories' ROIC was the highest of any of the oilfield service companies listed in its Comp Group. Several of the peer companies failed to post ROIC that exceeded their WACC, thereby eroding capital and shareholder value. Core's ratio of ROIC to WACC is the highest of any company in the Comp Group.

Comp Group companies listed by Bloomberg include Halliburton, Schlumberger, Carbo Ceramics, FMC Technologies, Baker Hughes, Cameron International, Oceaneering, National Oilwell Varco, and Oil States International, among others. Core will update the ROIC for the oilfield services sector for the third quarter 2012 in its fourth quarter 2012 earnings release.

Fourth Quarter 2012 Earnings Guidance, 2013 Outlook

Core Lab anticipates that North American activity levels will remain similar to third quarter levels, while international activity will continue with moderate increases. Therefore, Core expects fourth quarter 2012 revenue to range between $245,000,000 to $250,000,000, with EPS in the $1.10 to $1.17 range. This operational guidance excludes any foreign currency translations or any shares that may be repurchased in the fourth quarter, other than previously disclosed. A 25% effective tax rate is assumed for the fourth quarter.

This fourth quarter guidance reflects Core's ability to continue to grow year-over-year revenues above the increase in worldwide activity levels. For the third quarter of 2012, all three of the Company's operating segments increased year-over-year quarterly revenue totals.

The Company's outlook for 2013 remains positive. With continued support from robust Brent crude pricing and the expected delivery of additional deepwater drilling rigs, Core believes that it will continue to work in increasingly more established fields and new field development projects. In addition, as it has consistently done in the past decade, the Company plans to enter new fields where it currently does not have operations and to offer new technologies and additional services in 2013. These new technologies and services will be targeted at increasing the daily productivity and ultimate hydrocarbon recovery rates from liquids-related unconventional reservoir developments worldwide. Therefore, Core believes its business model to achieve a revenue growth rate of 200 to 400 basis points above the increase in worldwide activity level directed towards producing fields remains intact with incremental margins positively impacting operating margins.

Core expects FCF totals to remain at elevated levels in 2013 with the Company's client directed capex program to equal that of 2012. The Company expects to increase its quarterly dividend in 2013 while continuing its share buyback program.

The Company has scheduled a conference call to discuss Core's third quarter 2012 earnings announcement. The call will begin at 2:30 p.m. CET / 7:30 a.m. CDT on Thursday, 18 October 2012. To listen to the call, please go to Core's website at www.corelab.com.

Core Laboratories N.V. (www.corelab.com) is a leading provider of proprietary and patented reservoir description, production enhancement, and reservoir management services used to optimize petroleum reservoir performance. The Company has over 70 offices in more than 50 countries and is located in every major oil-producing province in the world.‹