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

Outlook
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

    The Top 5 Oil and Gas Penny Stocks for 2016 (XCO, CHK)

    Learn more about the oil and gas industry outlook, and discover the top five oil and gas penny stocks investors should consider for 2016.
  2. Stock Analysis

    Starbucks: Profiting One Cup at a Time (SBUX)

    Starbucks is everywhere. But is it a worthwhile business? Ask the shareholders who've made it one of the world's most successful companies.
  3. Stock Analysis

    How Medtronic Makes Money (MDT)

    Here's the story of an American medical device firm that covers almost every segment in medicine and recently moved to Ireland to pay less in taxes.
  4. Stock Analysis

    3 Volatile U.S. Industries to Exploit in 2016 (VRX, IBB)

    Read about volatile sectors in the stock market that may provide opportunities for investors in 2016, including energy, mining and biotechnology.
  5. Investing News

    Latest Labor Numbers: Good News for the Market?

    Some economic numbers are indicating that the labor market is outperforming the stock market. Should investors be bullish?
  6. Investing News

    Stocks with Big Dividend Yields: 'It's a Trap!'

    Should you seek high yielding-dividend stocks in the current investment environment?
  7. Investing News

    Should You Be Betting with Buffett Right Now?

    Following Warren Buffett's stock picks has historically been a good strategy. Is considering his biggest holdings in 2016 a good idea?
  8. Products and Investments

    Cash vs. Stocks: How to Decide Which is Best

    Is it better to keep your money in cash or is a down market a good time to buy stocks at a lower cost?
  9. Investing News

    Who Does Cheap Oil Benefit? See This Stock (DG)

    Cheap oil won't benefit most companies, but this retailer might buck that trend.
  10. Investing

    How to Ballast a Portfolio with Bonds

    If January and early February performance is any guide, there’s a new normal in financial markets today: Heightened volatility.
RELATED FAQS
  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 >>
COMPANIES IN THIS ARTICLE
Trading Center