Replies to post #5443 on The Rising Influence of Rising Affluence

[DewDiligence]

Addendum on CLB’s 2012 cash-flow and EPS outlook: In CLB’s 4Q11 release in Jan 2012 (#msg-71614643), the PR said:

For the full year 2012, the Company expects revenue of approximately $1,005,000,000 to $1,045,000,000, with EPS between $4.50 and $4.82.

For 2012, Core expects to generate over $200,000,000 in free cash flow, an all-time high, while increasing capital expenditures to an estimated $33,000,000.

In the 2Q12 PR (#msg-77718792), the sentence on 2012 EPS was removed, and the sentence on 2012 was changed by one word, as follows:

For 2012, Core expects to generate approximately $200,000,000 in free cash flow, an all-time high, while increasing capital expenditures to an estimated $33,000,000.

I.e., the word over in the 4Q11 PR was changed to approximately in the 2Q12 PR, a subtle distinction that indicates a slight reduction in cash-flow expectations.

On the CC, CEO David Demshur said the company was still comfortable with the $4.50-4.82 EPS guidance range for the full year, but they opted to not formally reiterate this guidance in the 2Q12 PR due to an increased uncertainty about the second half of the year.

[DewDiligence]

CLB lowers 3Q12/4Q12 guidance:

http://www.sec.gov/Archives/edgar/data/1000229/000100022912000048/exhibit991pressrelease.htm

Core Laboratories…expects 3rd quarter 2012 consolidated results to be below the prior guidance given on its 2nd quarter 2012 earnings release and subsequent earnings conference call. As discussed on that call, guidance was based upon a flat North American rig count along with a view to improving activity outside of North America. Since the end of the 2nd quarter 2012, the Baker Hughes land rig count for the United States is actually down by 112 units, roughly 6%, while the Canadian rig count is 30% below prior year levels. The oil rig count peaked at 1,432 in early August 2012 and has since dropped by 22 units. Over the same period, the gas rig count has decreased by 60 units.

This reduction in activity has impacted the Company's Production Enhancement segment, which is more levered to activity in North America. Expected revenues for Production Enhancement in the 3rd quarter 2012 were impacted proportionally with that downward change in industry activity levels. In response, Core has reduced variable and fixed cost components in this business segment to mitigate potential impact on its operating margins going forward.

Core now expects 3rd quarter 2012 revenues for its Production Enhancement segment to be approximately $100 million. While this is slightly higher than reported for the 2nd quarter 2012, it is not at the level expected before this recent fall in activity and rig count.

Core's Reservoir Description segment, which is more levered to the international activity levels, is expected to improve year-over-year with near-record quarterly revenues coupled with margin expansion between 200 and 300 basis points. The Company's Reservoir Management segment appears minimally impacted by the decline in North America activity levels.

As a result of these changes in activity levels from prior expectations, the Company now believes that its 3rd quarter 2012 consolidated revenues will be within the $240 million to $245 million range with EPS in the range of $1.09 to $1.13 per share.

Inasmuch as the prior 3Q12 guidance was $250-260M of revenue and $1.17-1.25 non-GAAP EPS (#msg-77718792), at the midpoint of the guidance ranges, the new guidance implies 5% less 3Q12 revenue and $0.10 less EPS than the old 3Q12 guidance.

What about 4Q12?

For the remainder of the year, Core expects activity levels to be similar to those experienced in the 3rd quarter 2012. Should activity levels remain the same, Core would expect 4th quarter 2012 revenues and earnings to be similar to the 3rd quarter 2012.

CLB’s prior 4Q12 guidance can be calculated by some simple arithmetic. The prior full-year 2012 guidance was $1.005-1.045B of revenue and $4.50-4.82 non-GAAP EPS (#msg-71614643). Adding the actual results from 1Q12, actual results from 2Q12, and the old guidance for 3Q12, and then subtracting this sum from the old full-year guidance gives the midpoint of the old guidance for 4Q12, which was $301M of revenue and $1.33 of non-GAAP EPS. Hence, CLB’s new guidance that 4Q12 will be similar to 3Q12 represents a rather drastic falloff from the old 4Q12 guidance in both revenue (-19%) and non-GAAP EPS (-$0.22).

CLB is down about 5% in AH trading. I’ll be pleased if the damage tomorrow is only 5%.