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[August 2006]
CARBO Ceramics Announces 2006 Second Quarter Results
CARBO Ceramics Inc (Irving, TX, USA) has announced net income of US$12.9 million on revenues of US$73.5 million for the quarter ended 30 June 2006. Revenues for the quarter increased 15% while net income increased 6% compared to the second quarter of 2005. For the six months ended 30 June 2006, the company reported net income of US$25.8 million on revenues of US$147.8 million. Revenues and net income for the first half increased 18% and 9% respectively, compared to the same period a year earlier.The increase in revenues compared to Q2/2005 was attributable to a 7% increase in the volume of proppant sold, a 7% increase in the average selling price of the company's proppant and a 16% increase in revenue from Pinnacle Technologies Inc. Revenues for Q2/2006 included US$7.8 million from Pinnacle compared to US$6.7 million for Q2/2005. The increase in revenue from both the proppant and fracture and reservoir diagnostic business segments was primarily attributable to increased hydraulic fracturing activity in North America.
Worldwide proppant sales totalled 204 million pounds for the quarter, an increase of 7% from Q2/2005. North American proppant sales volume for Q2/2006 was 16% higher than the same period last year driven by record sales in the USA. The new USA record was the result of both increased fracturing activity and market share gains in South Texas, the Rocky Mountains and Oklahoma.
While second quarter proppant sales volume in Canada declined versus this year's first quarter levels due to the normal seasonal reduction in Canadian fracturing activity, sales volume in this region increased 22% compared to Q2/2005. Overseas sales volume declined 21% compared to last year's second quarter due principally to decreased sales volume in Russia. While proppant sales in Russia reached their highest level since last year's third quarter, activity in the region remains slow due to an increase in freight costs and tariffs on imported products. The company is addressing this situation through the construction of a manufacturing facility in Kopeysk, Russia. Excluding results in Russia, sales volume in overseas export markets was down 4% from the previous year with strong activity in China, West Africa and North Africa offset by a decline in sales in the Middle East.The average selling price of the company's ceramic proppant in Q2/2006 increased 7% compared to Q2/2005, due primarily to increases in the price of the company's proppant that were implemented in June 2005 and November 2005. The impact of these increases was partially offset by a shift in the mix of products produced and sold toward the company's lower-priced lightweight ceramic proppant.
Operating profit for Q2/2006 was unchanged compared to Q2/2005 as a US$1.8 million increase in gross profit was offset by a US$1.8 million increase in selling, general and administrative expenses and other operating costs. The increase in gross profit compared to Q2/2005 was due to the increase in revenue in both the proppant and fracture and reservoir diagnostic business segments. Gross profit as a percentage of revenues declined due to a decrease in the margin on proppant sales, which was partially offset by an improvement in the margin for fracture and reservoir diagnostics. The primary factor contributing to the decline in gross profit margin in the proppant segment was an increase in the cost of natural gas used to manufacture these products. The company's spending for natural gas delivered to its US manufacturing facilities during Q2/2006 increased 49% compared to Q2/2005.
President and CEO Gary Kolstad commented on the quarter's results and provided additional guidance for 2006, stating: "While we established a number of new records during the second quarter, results were below the company's expectations due to lower than anticipated sales gains in the U.S. market. Rig counts have been increasing in key geographic markets for our products and services. If this trend continues, we expect to see revenue growth of approximately 10 percent in the third quarter with the seasonal resumption of activity in Canada, and anticipated improvements in sales in the U.S. and overseas markets. While these short-term expectations could be impacted by declining natural gas prices in North America or other risk factors, we believe the long-term trend of drilling an increasing number of gas wells in increasingly tight reservoirs will continue, and is a very favorable factor in driving the demand for our products and services. We will be re-initiating technical field trials in the third quarter and we will be expanding our domestic and international sales staff prior to the end of 2006 to drive future growth."
Regarding the company's international expansion, which is underway in the Russian Federation, Mr Kolstad stated: "We are continuing to make great progress on our plant in Kopeysk, Russia. The facility is approximately 75 percent complete and is expected to be operational prior to the end of 2006. We believe this new plant will be instrumental in helping us recapture market share in the Russian market. Additionally, we are actively working to increase our technical marketing resources in Russia in advance of the plant start-up."
www.carboceramics.com
ENDS