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[October 2007]
CARBO Ceramics Continues Overseas Growth
CARBO Ceramics Inc (Irving, TX, USA) reported third quarter net income of US$14.1 million on revenues of US$84.8 million. For the nine months ended 30 September 2007, the company reported net income of US$40.2 million on revenues of US$246.7 million.
President and CEO Gary Kolstad said: "We are pleased with our performance in the quarter, particularly in light of the continued pressure in the North American market caused by the depressed level of drilling and fracturing activity in Canada. While proppant sales volume declined in North America, we nearly doubled our overseas sales volume compared to last year's third quarter due to improving sales in Russia, China, the Middle East and South America. In addition, Pinnacle Technologies generated record revenue and operating profit driven by the growing demand for fracture mapping and reservoir monitoring services in North America".
Revenues for Q3 2007 increased by 10% compared to Q3 2006 due to a 3% increase in the volume of proppant sold, a 1% increase in the average selling price of the company's proppant and a 58% increase in revenue from Pinnacle Technologies. The increase in revenue in the company's proppant business segment was due to increased sales in overseas markets which were partially offset by decreased sales volume in North America. Consolidated revenues for Q3 2007 included US$12.9 million from Pinnacle compared to US$8.1 million for Q3 2006. Pinnacle's growth was driven by increased demand for fracture mapping and reservoir monitoring services, software products and consulting services.
World-wide proppant sales totalled 226 million pounds for the quarter. Sales volume in North America decreased by 9% compared to Q3 2006 due primarily to depressed levels of drilling activity in Canada, where the rig count decreased by 30% from the previous year. US sales decreased by 3% from the prior year's third quarter. While the number of rigs drilling for natural gas in the USA increased by 5% from Q3 2006, the increased activity occurred in shale formations in which ceramic proppants currently do not have a significant market share. In Mexico, the increase in the number of rigs drilling for natural gas, combined with an increase in the company's market share following a successful field trial earlier this year, resulted in an increase in sales volume of 140% in the country compared to last year's third quarter. In overseas markets, the company saw a 92% increase in sales volume compared to Q3 2006 due to increased sales in Russia, China, the Middle East and South America.
Operating profit for Q3 2007 decreased by US$1.3 million, or 6%, compared to the previous year's third quarter. While operating profit from Pinnacle increased to record levels, this was offset by a reduction in operating profit in the company's proppant business segment. Despite an increase in sales volume and revenues compared to the same period a year earlier, proppant operating profit declined due to high manufacturing costs during the start-up of the company's manufacturing facility in Russia and increased costs for high strength raw materials imported into the USA The impact of these cost increases was partially offset by lower natural gas costs in the company's domestic manufacturing facilities. Selling, general and administrative expenses for Q3 2007 increased by US$1.7 million compared to the same period last year due to increases in staffing to support higher sales activity in an expanding global market.
Net income for the Q3 2007 increased by US$0.6 million compared to Q3 2006. While interest income declined by US$0.3 million compared to last year's third quarter due to lower cash balances as a result of significant capital spending to add manufacturing capacity, 2007 results benefited from two non-operating items. During Q3 2007, the company recorded a gain of US$1.6 million on foreign currency fluctuations associated primarily with a loan outstanding to the company's Russian subsidiary. Q3 2007 results were also aided by a reduction of estimated income tax expense of US$0.5 million resulting from the completion and filing of 2006 tax returns.
Gary Kolstad commented on the future outlook for the company stating: "Like many industry participants, we are concerned about the continued depressed activity levels in Canada and the recent downturn in the number of rigs actively drilling for natural gas in the U.S. The high levels of natural gas inventory in the U.S. and economic challenges for operators in Canada are likely to result in a difficult operating environment in North America in the fourth quarter and possibly into 2008. This slowdown in activity is coming on the heels of the completion of a second production line at our Toomsboro, Georgia manufacturing facility, and the increased depreciation from this facility may put pressure on earnings in the short term.
"We will be proactive in working to offset the decreasing industry activity levels in North America. In the near term we will continue to increase the number of field trials we initiate to demonstrate the value of ceramic proppant relative to alternative proppants, add marketing and sales resources to expand the market for our products outside of North America, evaluate opportunities to reduce costs in our proppant production and distribution operations, develop a proppant targeted at the growing market for slick-water fracture treatments, and add technical resources necessary to meet the growing demand for Pinnacle Technologies' products and services. We remain optimistic about the long-term future of both of our business units based on our beliefs that worldwide energy demand will remain strong, high levels of drilling activity will be necessary to sustain production rates in North America and technology-based solutions will be key to increasing production of oil and gas worldwide."
ENDS