A Slick Quarter for Carbo Ceramics?

Oil-services firm Carbo Ceramics (NYSE: CRR  ) has been working overtime to meet the demand for its ceramic proppants, devices that smooth the flow of oil through wells. With 52% of the ceramic proppant market, and high oil prices making it both prudent and expedient to extract as much oil from each well as possible, Carbo Ceramics has been riding high.

The high worldwide demand has led Carbo, which supplies its proppants to Halliburton (NYSE: HAL  ) , Schlumberger (NYSE: SLB  ) , and BJ Services (NYSE: BJS  ) , to add facilities to manufacture even more; the company is opening plants in China and breaking ground in Russia. With Canadian sales volume increasing 51% and Mexican sales rising 150% in the most recent quarter, compared with rising U.S. sales of just 5%, Carbo's biggest problem has been to expand capacity fast enough to simply keep up.

LufkinIndustries (Nasdaq: LUFK  ) , an oil-services firm that manufactures reciprocal pumps to extract oil, has also benefited from the surge in demand. Like Carbo Ceramics, its business is based around helping companies get more oil out of existing sites than in the drilling of new wells, and last week it reported earnings that nearly tripled from last year.

Will Carbo do as well? It's due to report its earnings tomorrow. The consensus is for earnings per share to rise by less than 15% and revenues to increase by 14% over last year. Yet the company earlier announced a three-for-two stock split, effective Aug. 19, and boosted the company's quarterly dividend 25%, to $0.15 a share. Last year, it raised the dividend 20%, to $0.12. The company has exhibited all the signs of wanting to boost shareholder value while investing in its own future.

The new facilities, as well as some restructuring at its existing plants, will continue to put a minor drain on Carbo's profits. But the industry will continue to move away from sand-based proppants toward ceramics, which facilitate the flow of oil better but carry a higher price tag. The added cost is worth it to the oil companies and obviously more profitable to Carbo. Its margins have remained strong, even though it was able to raise prices by only 3% last quarter. The company maintains a conservative posture and warns investors that growth this year will be limited.

With a stock price that has appreciated by about 25% over the past year, multiples in excess of the market, and a price-to-sales ratio and PEG ratio ahead of average, Carbo Ceramics seems pricey at these levels. Yet demand continues unabated, and new markets, or previously underserved markets, provide new opportunities for expansion even if costs currently keep profits constrained.

With that in mind, Carbo Ceramics should be able to execute like a well-oiled machine.

Read these related Foolish articles:

Fool contributor Rich Duprey owns shares of Carbo Ceramics but none of the other companies mentioned in the article. The Motley Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 494379, ~/Articles/ArticleHandler.aspx, 10/28/2016 4:00:05 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,166.74 -2.94 -0.02%
S&P 500 2,127.00 -6.04 -0.28%
NASD 5,191.32 -24.66 -0.47%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

4/28/2010 4:02 PM
BJS.DL $23.18 Down +0.00 +0.00%
BJ Services Compan… CAPS Rating: ****
CRR $6.21 Down -0.97 -13.46%
CARBO Ceramics CAPS Rating: ***
HAL $46.58 Down -0.98 -2.05%
Halliburton CAPS Rating: ****
LUFK.DL $0.00 Down +0.00 +0.00%
Lufkin Industries,… CAPS Rating: ****
SLB $79.08 Down -0.52 -0.65%
Schlumberger CAPS Rating: ****