Core Laboratories Earnings: Contract Delays and Subdued U.S. Activity Weigh on Results

Wide-moat Core Laboratories delivered slightly weaker third-quarter results following a strong first half of 2023. Its production enhancement business was the main culprit, with segment revenue dropping 10% quarter over quarter as a result of lower-than-expected North American activity, exacerbated by a number of project delays from international clients that pushed product delivery to the fourth quarter. Despite these headwinds, Core maintained solid profitability, expanding the firmwide adjusted operating margin by more than 200 basis points to 13%. We don’t expect the operating environment will materially improve through year-end, and we’re lowering our fair value estimate slightly to $28 from $29 following results. At the time of writing, shares remain undervalued and trade at a more than 20% discount to our fair value estimate.