What happened
Shares of Core Laboratories (CLB) slumped 14% in December, according to data provided by S&P Global Market Intelligence. Two issues weighed on the energy company last month. Not only did it revise its fourth-quarter guidance, but it also slashed its dividend.
So what
Core Labs stock followed the price of oil higher for most of December. However, shares of the oil-field services company cratered at the end when it updated investors on its fourth-quarter outlook. Management noted that well-completion activity in the U.S was much weaker than it had expected, while discussions with clients on large international projects were slower than anticipated.
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Because of those factors, Core Labs reduced its fourth-quarter guidance. It cut revenue from a range of $161 million to $163 million, down to between $154 million and $156 million. Likewise, it reduced its earnings range from $0.44 to $0.46 per share to $0.37 to $0.38. The company also put out lackluster guidance for the first quarter of 2020, forecasting revenue in the range of $159 million to $164 million and earnings between $0.39 and $0.44 per share.
Because market conditions aren't improving as fast as the company expected, it chose to reduce its dividend by about 55%, bringing it down to a new quarterly rate of $0.25 per share. That move caught investors off guard, given that the company's management recently told them it had no plans to reduce the payout. However, the decision was prudent since the company has been borrowing money to bridge the gap between free cash flow and the payout.
Now what
The oil-field services market hasn't bounced back as quickly as Core expected even though oil prices have improved. That's weighing on the company's results and outlook, which forced it to slash its shareholder payout. Core, however, has a long history of returning most of its excess cash to investors via dividends and buybacks. Because of that, shares could bounce back if industry conditions recover and it uses that incremental cash to reward its investors.
