What happened?

Shares of oil-services company Flotek Industries (FTK -0.57%) are down 13% as of 1 p.m. EDT today. The reason for the large drop in shares is most likely related to the company's earnings report missing Wall Street's expectations.

So what?

Flotek reported a first-quarter loss of $0.20 per share on revenues of $79.9 million. While the company did beat expectations for revenue, that per-share loss was well below consensus estimates. Much of the loss was a result of discontinued operations; if we removed their effect, net income for the quarter would have been a $0.01-per-share loss.

Two oil-drilling rigs in the field

Image source: Getty Images.

Probably the thing that is most discouraging about the results is rising costs. While revenue was up about 25%, cost of goods sold increased 30% and selling, general & administrative costs increased 15%. As a result, Flotek's income from operations actually decreased compared to this time last year, when U.S. shale drilling was close to its nadir. Perhaps this is just a one-time thing as the company ramps up production to meet growing demand from the shale patch, but it is something to watch in the coming quarters.

Now what?

Flotek made the right decision to exit its drilling technologies segment by selling it to National Oilwell Varco a couple of days ago. Management is also looking to sell its production technologies segment. Doing so will allow the company to focus on its specialty chemical business, which is designed to improve well economics for hydraulic fracturing.

However, the company needs to show that it can produce profitable results from this segment relatively soon. It's a little discouraging to see that operating income was actually lower than this time last year, considering the two wildly different operating environments. Hopefully, this is just a one-time event, so it is worth waiting to see what happens next quarter.