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Tickers in this Article: PBR, CLB
Core Laboratories N.V. (CLB) has reported mixed second quarter 2012 results, owing to superior performances across all the three business units, partially offset by steeper operating expenses.

Quarterly earnings per share (EPS), excluding special items, came in at $1.16, beating the Zacks Consensus Estimate by a penny. Comparing year over year, EPS increased 28.9% from 90 cents.

The performance was aided by the company's consistent emphasis on major oil-related and liquefied natural gas projects globally.

Total revenue for the quarter was $247.0 million, up 9.4% from $225.8 million in the prior-year quarter, on the back of strong growth across all business units. However, the result was below the Zacks Consensus Estimate of $252.0 million.

Reservoir Description Segment

Revenues at the Reservoir Description segment (which focuses on international crude oil related projects) upped 6.5% year over year to $126.5 million in the second quarter. Operating income for the unit grew 28.4% year over year to $38.9 million, with the operating margin coming in at 31%. The improvement was attributable to an increase in client base along with major deepwater projects in West and East Africa, the Eastern Mediterranean area, the Middle East, and Asia-Pacific regions. The company's activities in Gulf of Mexico and onshore ventures in North America also boosted the segment's results.

Production Enhancement Segment

Core Laboratories' Production Enhancement revenues leaped 12.1% year over year to $99.5 million in the quarter while operating income improved 22.9% year over year to $30.1 million. Operating margin was an impressive 30%, buoyed by the greater market share of the HTD-Blast perforating system and high demand for advanced technologies.

Reservoir Management Segment

Quarterly revenues from Reservoir Management operations stood at $21.0 million, up 15.4% year over year while operating income plunged 2.7% year over year to $7.1 million. Operating margin for the quarter was 34%. The results were driven by high-quality study results that have attracted many industry players. In Brazil, Core Labs, in collaboration with Petroleo Brasileiro S.A. or Petrobras (PBR), has undertaken a number of reservoir analysis ventures in onshore and offshore plays of the country.

Balance Sheet, Free Cash Flow & Share Buyback

As of June 30, 2012, Core Laboratories had cash and cash equivalents of $23.4 million. Capital expenditures for the second quarter were $7.6 million. The company generated free cash flow of $39.5 million.

Quarterly Dividend

On July 10, 2012, Core's board announced a cash dividend of 28 cents per share (amounting to an annualized payout of $1.12 per share) on its common stock. The dividend will be paid on August 20, 2012 to shareholders of record as of July 20, 2012.

Dual Listing

On May 16, 2012, Core Labs completed the listing of its shares on the NYSE Euronext Exchange in Amsterdam, where the stock will trade under the symbol CLB NA. This move was taken to support the expanding overseas operations and bring in more international institutional investors within the company's ownership.

Outlook

Core Labs expect oil-shale reservoirs revenue to be approximately $200 million in 2012, aided by higher unconventional oily reservoirs activities in North America, South America and North Africa.

International projects are also expected to provide high returns, supported by the on-time arrival of additional deepwater rigs throughout the remainder of the year. 2012 will likely see greater pre-salt activities in the Kwanza basin offshore Angola as well as in Iraq and Asia Pacific.

For the third quarter, Core Labs forecasts total revenue in the $250 million to $260 million range, with the midpoint representing a year-over-year growth of 10%. Earnings per share will likely be between $1.17 and $1.25 per share, reflecting an improvement of 21% from the prior-year quarter level.

Our Take

We believe that Amsterdam, Netherlands-based Core Labs' technology-heavy portfolio of proprietary products and services gives it the opportunity to optimize production from new and existing fields. The company's consistent attempts to improve its activities in the deepwater Gulf of Mexico and emphasize unconventional oil-shale reservoirs operations are expected to drive results in the coming months. Additionally, Core Labs' global footprint provides for steady growth rates going forward.

However, we prefer to remain on the sidelines due to the company's exposure to the volatile oil and gas fundamentals, exploration and production spending patterns, cost escalations along with international business risks. Hence, we expect Core Labs to perform in line with the broader market and therefore, maintain our Neutral recommendation on the stock.

Core Labs currently retains a Zacks #3 Rank, reflecting a Hold rating for a period of one to three months.
 

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