Core Labs (CLB) Cuts Quarterly Dividend, Revises Q4 Guidance

Most explorers and producers in the United States opted for conservative spending since they are mostly bothered about bottom-line growth — prompted by investors following years of dull returns — rather than just the surge in oil and gas production. Overall, curtailing investments in domestic upstream activities might affect rig demand. Hence, U.S. drillers may continue to lower the oil rig count in months ahead. This tough operating environment prompted oil service providers like Core Laboratories (NYSE:CLB) to prioritize financial discipline over high-octane growth.

As part of its efforts to decrease expenses, Core Labs recently cut its quarterly dividend and lowered fourth-quarter guidance. Following this move, the company’s shares declined 19%.

This Netherlands-based oilfield service company slashed its quarterly dividend payout by almost 55% from 55 cents per share to 24 cents (made effective from first-quarter 2020). Management stated that this strategic action was necessary in the light of its aim to boost the existing cash position. This move aimed at strengthening the company’s balance sheet will likely lower Core Labs’ annual dividend distribution by roughly $53 million.

The company’s Production Enhancement segment’s underperformance in the third quarter was primarily due to the reduction in U.S. land activity induced by lower U.S. onshore rig counts. Further, slower-than-expected progress in the large international and offshore projects affected the fourth-quarter 2019 financial results for Core’s Reservoir Description segment.

Further, the company cautioned that slower-than-expected progress in the large international and offshore projects affected the fourth-quarter 2019 financial results for Core’s Reservoir Description segment.

Based on these headwinds, Core Labs trimmed its fourth-quarter revenues and anticipates the same between $154 million and $156 million, lower than the previously provided guidance of $161-$163 million. Operating income, earlier envisioned in the $28-$29 million range, is now expected in the $25-$27 million band with operating margin estimated at 16%. The company now foresees fourth-quarter earnings per share in the 39-41 cents bracket, lower than the prior projection of 44-45 cents.

Core Labs issued a preliminary outlook for the first quarter of 2020 wherein it expects its quarterly revenues within $159-$164 million and earnings per share in the 39-41 cents range. Its operating income is predicted between $25 million and $27 million with operating margins expected at 16%.

The company is set to report fourth-quarter 2019 results, after the closing bell on Thursday Jan 30. The current Zacks Consensus Estimate for the to-be-reported quarter is pegged at earnings of 38 cents on revenues of $157 million.

Core Labs is an oilfield services company operating in more than 50 countries. The company deals in providing reservoir management and production enhancement services for the oil and gas companies. Geographically, the company has its operations in the United States, Europe, Africa, Middle East, Asia Pacific, Canada, Russia, Latin/South America.

Zacks Rank & Key Picks

Core Labs currently carries a Zacks Rank #3 (Hold). Some better-ranked players in the energy space are TC Energy Corporation (TSX:TRP) , Kosmos Energy Ltd (NYSE:KOS) and Suncor Energy Inc. (NYSE:SU) , all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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