Why Is Silica Holdings (SLCA) Down 26% Since Last Earnings Report?

A month has gone by since the last earnings report for Silica Holdings (SLCA). Shares have lost about 26% in that time frame, underperforming the S&P 500.

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

U.S. Silica Beats Q2 Earnings, Lags Sales Estimates

U.S. Silica’s net income declined year over year in second-quarter 2019.  The company logged profits of $6.2 million or 8 cents per share compared with net income of $17.6 million or 22 cents in the year-ago quarter.  

Barring one-time items, adjusted earnings were 14 cents per share, which beat the Zacks Consensus Estimate of breakeven per share.

U.S. Silica generated revenues of $394.9 million, down around 7.6% year over year. The figure trailed the Zacks Consensus Estimate of $397.6 million.

Per the company, the Industrial and Specialty Products segment delivered record contribution margin in the reported quarter. Moreover, Sandbox had all-time record delivered loads.

Segment Highlights

Revenues in the Oil & Gas division came in at $273.1 million, down 16% year over year. Overall sales volume rose 13% year over year to 3.932 million tons. Oil & Gas contribution margin declined 38% year over year to $71.5 million or $18.17 per ton.

Revenues in the Industrial and Specialty Products division were $121.8 million in the quarter, up 18% year over year. Overall sales volume fell 5% year over year to 0.972 million tons. ISP contribution margin was $50.1 million or $51.61 per ton in the quarter under review, up 21% year over year.

Financials

At the end of the second quarter, cash and cash equivalents were down 41.2% year over year to $189.4 million. Long-term debt was roughly $1,229.8 million in the quarter, down 1.9% year over year.

The company also generated operating cash flow of $71.6 million during the quarter.

Outlook

U.S. Silica projects capital expenditures to be around $125 million for 2019.

For Oil & Gas proppants, the company expects volumes to increase roughly 10% sequentially in the third quarter. However, it expects softer volumes during the fourth quarter due to stretched production and exploration budgets as well as decline in activity levels.

Per the company, SandBox is making efficiency gains that is driving more savings with customers. It believes that this will offset margin pressure. Minimal non-productive time, bigger boxes and technological improvements are boosting operational efficiency as well as labor cost effectiveness. The company stated that it is actively engaged in exploring new applications for the SandBox technology in other new oilfield segments and industries.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 38.41% due to these changes.

VGM Scores

At this time, Silica Holdings has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

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

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. 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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