A year ago, Core Laboratories(NYSE:CLB) financial results finally began recovering after tumbling amid a prolonged downturn in the oil market. At the time, the company expected more of a V-shaped recovery, with earnings and profitability bouncing back sharply in 2017. While results did rebound, the recovery's pace wasn't quite as brisk as anticipated. However, the slow grind higher did continue in the fourth quarter.

Core Labs results: The raw numbers

Metric

Q4 2017

Q3 2017

Quarter-Over-Quarter Change

Revenue

$171.9 million

$166.2 million

3.4%

Net income

$21.7 million

$21.1 million

2.9%

EPS

$0.49

$0.48

2.1%

Data source: Core Labs. EPS = earnings per share.

Silhouette of an offshore drilling rig at sunset.

Image source: Getty Images.

What happened with Core Labs this quarter?

The steady upward climb continued.

  • Revenue rose again in the fourth quarter. While it was only 3% higher than last quarter, it was 15% better than the year-ago period. Furthermore, revenue came in slightly above guidance of $171.5 million.
  • Earnings, likewise, continued their steady climb, up about 3% versus the third quarter and 40% year over year. After adjustments for changes in the tax law and foreign exchange fluctuations, earnings were $0.58 per share, which matched its forecast and was up 21% versus last quarter and 42% above the year-ago period.
  • Core generated $41 million of free cash flow during the quarter, up from $25 million last quarter and $20 million last year. The company used that money to pay $24.3 million in dividends, repurchase $8.7 million in stock, and pay off $7 million in debt.

What management had to say

One of the things management highlighted in the earnings press release was the margin improvement during the quarter. It noted that "operating margins for the company increased 400 basis points ('BPS') year over year and sequentially 200 BPS to 19%." That improvement is why the company's adjusted earnings rose 21% over the third quarter while revenue was up only about 3%. Management pointed out that the "improving margins were a result of higher-technology services and products being requested by Core's technologically sophisticated client base and improved utilization of our facilities."

Looking forward

While Core's financial results have steadily recovered for the past year, the company expects to take a breather next quarter because of the typical seasonal slowdown in the industry. As a result, it sees revenue slipping to a range of $168 million to $172 million and earnings dipping to $0.56 to $0.58 per share. However, at the midpoint, that forecast represents an 8% increase in revenue and a 36% boost in earnings over last year.

The company then expects its rebound to reaccelerate, especially in the second half as it benefits from the early stages of a recovery in international and offshore markets. That's because those markets will "return to growth for the first time since 2014," according to an executive at oil-service giant Schlumberger (NYSE:SLB). As a result, "after three very tough years, it is now clear that the tide is clearly turning in favor of Schlumberger," according to comments from its CEO. As that recovery takes hold, it will not only benefit companies like Schlumberger but also should help push Core's margin back up toward its historically higher levels and drive earnings even higher. 

Matthew DiLallo owns shares of Core Laboratories. The Motley Fool recommends Core Laboratories. The Motley Fool has a disclosure policy.