Core Laboratories Earnings: International Activity Offsets a Subdued North American Land Market

Wide-moat Core Laboratories CLB posted decent second-quarter results as accelerating international oil and gas activity helped offset stalling activity growth in North America. We’ll incorporate the firm’s full operating and financial results shortly, but after this first look, we maintain our $29 per share fair value estimate.

Second-quarter revenue totaled $128 million up 6% year over year, but was down 0.5% sequentially. Strong performance in the reservoir description segment—which serves mostly international end markets—led the charge for top line growth this quarter. We expect the segment will remain the stronger performer in the future, given that activity in North America will likely remain somewhat subdued through year-end. The segment further benefits through exposure to offshore projects, where robust activity is expected through the latter half of the decade.

The firmwide operating margin surpassed 12% this quarter, expanding nearly 100 basis points quarter over quarter and more than 400 basis points year over year. Operating margins remain well below average prepandemic levels of 17%, but we expect Core’s profitability will continue its steady expansion as international and offshore projects comprise an increasingly larger share of the firm’s revenue mix. These end markets typically reflect a longer project cycle than North American land and are generally less reactive to changing market dynamics over time. For example, the international rig count has posted steady sequential growth of about 4% per quarter since the end of 2020, when global rig counts bottomed. Conversely, the North American rig count as averaged 11% growth over the same period, with significantly higher fluctuations from quarter to quarter. Overall, Core Labs remains on track for a solid fiscal 2023, and we expect further improvements will materialize as international projects continue to ramp up.