In This Article:
At the beginning of the year, Hi-Crush Partners' (NYSE: HCLP) management braced investors for a tough fourth-quarter report that would feature lower than anticipated sales and a suspension of its distribution. Considering that investors were warned of a challenging quarter, the numbers that the company produced weren't that bad. Even though volumes were down significantly, the company was able to generate a modest operational profit thanks to some of management's adjustments. Let's take a look at what the company did to make this past quarter palatable for investors, and whether that makes this stock more attractive.
By the numbers
| Metric | Q4 2018 | Q3 2018 | Q4 2017 |
|---|---|---|---|
| Revenue | $182.2 million | $213.9 million | $216.4 million |
| $11.4 million | $45.9 million | $53.8 million | |
| EPS (diluted) | ($0.08) | $0.29 | ($0.47) |
| Distributable cash flow | $1 million | $40 million | $51.9 million |
DATA SOURCE: HI-CRUSH PARTNERS EARNINGS RELEASE. EPS = EARNINGS PER SHARE.
By no means was this a good quarter for Hi-Crush, but it probably could have been a lot worse. Well completion activity -- the part of the process that involves fracking and using sand -- ground to a near halt in the fourth quarter as many exploration and production companies either exhausted their 2018 capital spending budgets early or struggled to obtain sufficient takeaway capacity in pipelines. The oil services companies that do the completion stage -- giants like Halliburton and Schlumberger -- noted significant drop-offs in completion activity in the quarter, which led to a record inventory of drilled but uncompleted wells (DUCs) across the lower 48. At the same time, Hi-Crush and its peers have been bringing loads of new supply onto the market. This one-two punch of surging supply and diminishing demand means the price per ton of sand should fall through the floor.
What was surprising about these results was that the company was still able to produce a respectable contribution margin per ton sold. Management noted that its contribution margin was $14.35 per ton. That number is significantly below the $30.94 per-ton margin it was getting six months ago, but considering how bad things were expected to be, this result was commendable. Management was able to generate a modest operating profit for the quarter due to the combination of three factors:
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It has significantly increased its take-or-pay contracts such that 51% of its sales were direct to exploration and production companies under these contracts in the quarter.
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Its logistics and last-mile service continues to grow and enhance the margin of per ton sold, and
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Management was quick to shutter operations at one of its mines to cut operating costs.