Well completion activity in the U.S. onshore market has been much weaker than Core Labs initially expected during the fourth quarter. Furthermore, the company noted that its discussions with clients regarding work on large projects in international and offshore markets had progressed slower than anticipated.
Because of these factors, the company slashed its guidance for the quarter. It now expects revenue between $154 million and $156 million, which would be below its guidance of $161 million to $163 million. The company also reduced its earnings forecast range from $0.44 to $0.46 per share to $0.37 to $0.38.
Core also provided investors with guidance for the first quarter of 2020. It expects revenue in the range of $159 million to $164 million, while earnings should be between $0.39 and $0.44 per share. It's worth noting that both sets of numbers are below its initial forecast for the fourth quarter, which is a seasonally weaker period, showing the impact that the lackluster market conditions are having on its financial results.
With market conditions not improving as it anticipated, Core Labs decided to slash its dividend by nearly 55%, bringing it down to $0.25 per share each quarter. That move is a complete reversal from its stance earlier in the year, when management assured investors that it was not going to reduce its dividend. At the time, the company thought that improving international market conditions -- when combined with cost-cutting initiatives and noncore asset sales -- would enable it to maintain its dividend. However, with international markets coming back slower than anticipated, it chose to cut its payout so that it didn't need to continue borrowing to fund the dividend.
Core Labs has done a lousy job forecasting the oil market recovery over the years. It has been overly optimistic that activity levels would bounce back sharply. Instead, they've bounced around because oil companies have taken a cautious approach to approving new projects.
These missteps have eroded investors' confidence in Core's management team. The company is going to have to work hard to win them back, which will only happen if it starts delivering on its promises. Until that happens, shares will likely remain under pressure.