Carbo Ceramics (NYSE:CRR) navigated its way through the treacherous energy cycle during the first quarter of 2012, as the company deftly managed the natural gas to liquids development shift transition underway in the industry.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

First Quarter of 2012
The company reported a net income of $30.3 million, or $1.31 per diluted share in the first quarter of 2012, about flat with the same quarter of 2011. Top line growth was better for the company with revenues coming in at $163.2 million in the most recent quarter, up 8% over the first quarter of 2011.

Proppant Sales
It manufactures and sells ceramic and resin coated sand proppant used by its customers during the hydraulic fracturing of oil and gas wells. The company sold 404 million pounds of proppant during the quarter, up marginally from the 399 million pounds sold in the same quarter of 2011.

The reported volume increase masked a slight deterioration in North America, where Carbo Ceramics reported a 2% volume decrease on a year-over-year basis.

SEE: Investing In Oil And Gas UITs

The company was not optimistic on conditions for the balance of 2012, with Gary Kolstad, the CEO of Carbo Ceramics, calling the year "challenging." It believes that the transfer of oil services capacity and supplies into crude oil and liquids areas will continue, and pricing pressure will "become more evident" during the rest of 2012.

It promised investors that it would exercise pricing discipline during the downturn and expects that the increased productivity derived from the use of its ceramic proppant product line will keep sales strong.

Other companies that are suffering from this transition away from natural gas development include Nabors Industries (NYSE:NBR), which provides hydraulic fracturing services in the onshore United States. The company recorded a $3 million charge related to the redeployment of supplies during the first quarter of 2012.

SEE: Unearth Profits In Oil Exploration And Production.

The Cycle
Carbo Ceramics has managed previous drilling cycles fairly well. During the most recent recession, the company reported only a slight decrease in year-over-year proppant volumes.

One issue that investors should incorporate into an investment thesis on Carbo Ceramics is the company's dependence on sales to several large customers. Schlumberger (NYSE:SLB) and Halliburton (NYSE:HAL) each accounted for more than 10% of company sales in 2011. This may limit the company's ability to maintain pricing during a downturn.

SEE: 5 Biggest Risks Faced By Oil And Gas Companies.

The Bottom Line
The management of Carbo Ceramics expects industry conditions to worsen slightly for the balance of 2012, and plans to manage the downturn through pricing discipline. The company will also attempt to convince its customer base that proppant is more technologically advanced will lead to greater well productivity and is worth the higher cost.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  2. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  3. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  4. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  5. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  6. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  7. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  8. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  9. Stock Analysis

    Is Walmart's Rally Sustainable? (WMT)

    Walmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
  10. Stock Analysis

    GoPro's Stock: Can it Fall Much Further? (GPRO)

    As a company that primarily sells discretionary products, GoPro and its potential falls right in line with consumer trends. Is that good or bad?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center