Oil prices were awful during the third quarter, plunging more than 20%. That would lead us to believe that oil-field company Core Laboratories (NYSE:CLB) would be in for a rough quarter. However, that's not what we see in its results, which were released Wednesday after markets closed. Instead, it outperformed oil-field service rivals like Schlumberger (NYSE:SLB) by reporting operating income and margins that increased sequentially.

Core Labs results: The raw numbers


Q3 2015 Actuals

Q2 2015 Actuals

Growth (QOQ)


$197.3 million

$204.0 million


Net Income

$35.4 million

$35.4 million






Data source: Core Labs.

What happened with Core Labs this quarter?
Core Labs' third-quarter results showed a lot of resilience in the midst of a tough oil market:

  • Its revenue description business posted revenue of $117.9 million in the quarter, which was down just 1% from last quarter. However, operating income increased thanks to a sequential improvement in margins of 60 basis points.
  • The production enhancement division didn't fare quite as well with revenue slipping 8% sequentially to $64.9 million. Meanwhile, that segment's operating income slipped 15% as a result of a decline in margins of 170 basis points.
  • The highlight on the quarter was its reservoir management segment. While revenue was flat at $14.5 million, both net income and margins increased sharply. Driving this increase was the completion of several large projects.
  • Another highlight was free cash flow, which came in at $37.5 million for the quarter and exceeded net income for the fourth straight quarter.
  • With that cash flow, Core Labs continued its generous shareholder distributions, paying out $23.4 million in dividends and buying back $28.7 million in shares. Those buybacks pushed the company's share count down to a 17-year low.

What management had to say
In describing the company's major accomplishment during the quarter, management pointed out in the earnings release that:

In contrast to major oilfield service companies that have already reported, Core Labs' third-quarter 2015 net and operating income and operating margins, ex-item, all increased sequentially over second quarter 2015 levels as a result of the Company's cost reduction, lab automation and multiskilling programs.

That's a real feather in its cap because most other oil-field services companies are struggling amid the downturn in oil prices, which is putting pressure on service and product prices and therefore oil-field service margins. Industry leader Schlumberger, for example, saw its pre-tax operating income drop 11% sequentially while its pre-tax operating margin dropped by 101 basis points. This contrast shows the fundamental difference between Core Labs' business model and its competitors. That difference relates to the fact that many of its products and services are proprietary or patented and therefore immune to pricing pressure.

Looking forward
One area where Core Labs fell short was in its outlook. It projects that revenue will fall by 9% sequentially to $180 million. Furthermore, fourth-quarter earnings are also expected to slip to a range of $0.63 to $0.67 per share.

Core Labs believes that the fourth quarter could represent the bottom for its financial results because it predicts a recovery in both oil prices and oil-field service activity levels in 2016.  However, it is also worth pointing out that this outlook differs considerably from Schlumberger's, which also does see oil prices rising next year, but doesn't expect oil-field service activity or service pricing improving until 2017.

While that outlook difference is worth noting, given Core Labs' proprietary products its business could very well improve faster than the rest of the oil-field service market.