What happened
Shares of U.S. Silica (SLCA 0.19%) lost over one-third of their value today after the company announced third-quarter 2019 operating results. There wasn't much to celebrate.
The frack sand and industrial ceramics supplier reported an adjusted loss per share of $0.17 for the quarter, while analysts' consensus estimate called for a loss of just $0.03 per share on the same basis, according to numbers compiled by Yahoo! Finance. The company also whiffed on revenue, reporting $361.8 million against expectations for over $395 million.
U.S. Silica is making moves to better position itself to thrive in the current environment, but investors have been hearing that for years now and don't seem motivated to keep riding this one out. As of 11:55 a.m. EDT, the stock had settled to a 36.5% drop.
Image source: Getty Images.
So what
U.S. Silica faces headwinds for both of its core businesses: proppants (read: frack sand) and industrial products. While some of the weakness in the oil and gas market is due to a seasonal lull, the company noted that there's a severe imbalance between supply and demand.
The industrial company estimates that full-year 2019 demand for the entire frac sand market will be no more than 110 million metric tons, but supply will be at least 140 million metric tons. The mismatch for Northern White Sand is even more severe, with demand of about 20 million metric tons and supply of at least 40 million metric tons this year.
More worrisome is the unexpected weakness in industrial products. U.S. Silica experienced purchasing delays from customers working through inventory and told investors that uncertainty in global industrial markets caused by tariffs and political uncertainty is weighing on ceramic markets. Considering the industrial business was supposed to overcome weakness in proppants, that's not a great development.
Now what
U.S. Silica says it's positioning itself to succeed in the current market. It added 15 new oil and gas customers during the quarter and is focusing on the highest-value, most secure industrial products and customers. The company expects to reduce capital expenditures from $125 million in 2019 to as low as $40 million in 2020. That will create free cash flow to deleverage the balance sheet, but investors don't appear eager to wait around and see how things turn out.
It could be tempting to view U.S. Silica as a value stock, especially given its market cap of just $365 million, but investors should be aware of the risks to owning a commodity-driven company.
