Silica Holdings (SLCA) Up 3.6% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Silica Holdings (SLCA). Shares have added about 3.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Silica Holdings due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

U.S. Silica's Q4 Earnings Beat, Sales Miss Estimates

U.S. Silica swung to a loss in fourth-quarter 2018.  The company recorded net loss of $256.1 million or $3.44 per share in the quarter, against net income of $72 million or 88 cents in the year-ago quarter. The bottom line in the reported quarter was hurt by impairment expenses, costs associated with plant startup and capacity expansion, M&A expenses as well as contract termination costs.

Barring one-time items, adjusted loss was 4 cents per share, which was narrower than the Zacks Consensus Estimate of a loss of 8 cents.

U.S. Silica generated revenues of $357.4 million for the quarter, which inched up around 0.9% year over year. However, it missed the Zacks Consensus Estimate of $373.1 million.

2018 Highlights

The company reported net loss of $200.8 million or $2.63 per share in 2018, against net income of $145.2 million or $1.77 recorded in 2017.

Revenues increased 27% year over year to $1.58 billion.

Segment Highlights

Revenues in the Oil & Gas sand division came in at $243.5 million, down 20% year over year. Overall sales volume rose 17% year over year to 3.704 million tons. Oil & Gas contribution margin declined 39% sequentially and 43% year over year to $54.3 million.

Per the company, Oil & Gas sand proppant sales were affected by industry headwinds associated with lack of takeaway capacity and budget exhaustion. Moreover, pricing pressure resulting from combination of additional local sand capacity in the Permian and low demand impacted performance.

Revenues in the Industrial and Specialty Products division were $113.8 million in the quarter, up 109% year over year. Overall sales volume rose 10% year over year to 0.933 million tons. ISP contribution margin was $44.6 million in the quarter, down 9% sequentially and up 109% year over year.

Results in the ISP segment were driven by enhanced product and customer mix along with significant contribution from EP Minerals.

Financials

U.S. Silica had $202.5 million in cash and cash equivalents as of Dec 31, 2018, down roughly 47.3% year over year. Long-term debt rose more than two-fold year over year to roughly $1,246.4 million in 2018.

Capital spending in the fourth quarter was $119 million. The company also generated operating cash flow of $43 million during the quarter.

Outlook

U.S. Silica expects capital expenditures for 2019 to be roughly $100-$125 million.

Annual proppant demand for the Oil & Gas sand business in 2019 is forecast to rise 5-10% at roughly 110 million tons, assuming that oil will stay at 50 dollar per barrel. The company also said that demand could increase to more than 130 million tons at 70 dollar per barrel oil.

The company noted that in-basin sand supply will continue to expand. By the end of 2019, it expects 67% of the total industry demand supplied by in-basin sand, of which 33% is expected to be supplied by Northern White Sand.

U.S. Silica expects the recently added local Permian sand mines to operate at capacity. However, Northern White mines are expected to stay under pressure with lower utilization and pricing.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -423.98% due to these changes.

VGM Scores

Currently, Silica Holdings has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Silica Holdings has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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