Oil services firm Carbo Ceramics (NYSE:CRR) will report fourth-quarter 2006 financial results on Thursday, Feb. 1, giving investors a chance to determine whether the company is fractured or not.

What analysts say:

  • Buy, sell, or waffle? Only three analysts take a crack at venturing an opinion, and two say hold while one says buy.
  • Revenues. Sales of proppants are expected to propel revenues 24% higher to $79.3 million.
  • Earnings. Likewise, profits are forecast to jump 28% to $0.55 per share.

What management says:
Sales of proppants in North America have been what's pushed Carbo's sales since last quarter, and although international sales have also been respectable, Carbo Ceramics was hurt by delays in the construction of its new facility in Russia. A contract dispute with a contractor has pushed back the opening of the plant from the end of 2006 to some time in the first quarter of 2007, with the plant not opening till mid-year. The Russian plant has been seen as an opportunity to expand its base in that country, and the company has been counting on getting it online for some time. It's been vexing that delays keep stringing this along and hurting performance.

In addition to volume increases, Carbo Ceramics has been able to push price increases as well. Although that sometimes has had the effect of causing customers to switch to lower-cost, sand-based products, ceramic proppant volume increased 17% over the first nine months of 2006, mostly as the North American rig count -- the number of oil drilling rigs in operation -- has remained high.

What management does:
As the chart below shows, the delays from Russia, coupled with customers switching to lower margin products, has resulted in reduced profits for the proppant maker. International sales increased 10% during the most recent quarter if one excluded sales in Russia, but that country dragged down overseas sales, which resulted in an overall decline of 15% year over year. Costs will also be exacerbated by having to supply local Russian demand with proppant shipments from elsewhere, and the plant still needs to receive permits from regulatory agencies there. As a result, expect Carbo Ceramics to have depressed earnings for a few quarters yet.

Margin

09/05

12/05

03/06

06/06

09/06

Gross

39.8%

39.1%

38.1%

37.4%

37.0%

Operating

28.8%

27.9%

27.2%

26.6%

25.8%

Net

18.7%

18.5%

18.1%

17.7%

17.2%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
With drilling for oil and natural gas at some of their all-time highest levels, this should be a time of wheat and honey for Carbo Ceramics. However, forces beyond its control have impeded the company's ability to capitalize on the situation, and instead it will see continued margin compression as a result.

When the Russian facility is finally operational, Carbo Ceramics sees it filling a need that cannot currently be met by local proppant companies and, considering its unique products, should allow it to capture a larger share of the market. That, though, is still some time off, and investors, of which I count myself among, will need patience as the company works though these issues.

Competitors and customers:

  • Flotek Industries (AMEX:FTK)
  • Shlumberger (NYSE:SLB)
  • Halliburton (NYSE:HAL)
  • BJ Services (NYSE:BJS)

Related Foolishness:

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Fool contributor Rich Duprey owns shares of Carbo Ceramics but does not own any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.