No investor should expect a quarter to go perfectly. In the case of Hi-Crush Partners (HCRS.Q), the company had to deal with several issues related to getting its sand to customers. Despite these challenges, the frack sand provider was still able to produce better-than-expected results and continue its ambitious plan to return cash to shareholders. Let's look at what happened at Hi-Crush Partners this past quarter and what investors should make of this situation.
By the numbers
|Metric||Q1 2018||Q4 2017||Q1 2017|
|Revenue||$218.1 million||$216.4 million||$83.4 million|
|EBITDA||$65.6 million||$54.9 million||$1.35 million|
|Distributable cash flow||$56.4 million||$52.6 million||$0.05 million|
Demand for frack sand is incredibly high right now. So high, in fact, that many North American railroad companies are struggling to keep up with the increased capacity demand. According to Hi-Crush, its unit train rail shipments from its Northern White sand facilities declined by 33% because of congestion and other rail-related issues. Ultimately, these issues resulted in a 15.7% decrease in delivered sand compared to the prior quarter.
Fortunately, though, the company was able to make up for rail issues with a strong showing from its new sand mine in Kermit, Texas, and with better results from its PropStream last-mile logistics service. These two businesses helped to boost contribution margins to $29.08 per ton sold. If the company is able to maintain these kinds of profit margins as rail issues clear up, we should expect even better results down the road.
Perhaps most concerning to investors is its distribution, which the company continues to increase after reinstating it late last year. This past quarter, Hi-Crush increased its payout to $0.225 per unit, which at today's price represents a 6.9% yield. On top of its distribution, management said that it repurchased $9.4 million in shares in the first quarter and had cumulatively bought back $29 million at the time earnings were released.
What management had to say
In Hi-Crush's press release, CEO Robert Rasmus gave a brief overview of the company's outlook for the rest of the year.
As Class-1 rail challenges subside, we expect the full utilization of our assets, combined with realized frac sand demand that surpasses 110 million tons in 2018, will support even stronger results. Increased pricing, driven by market tightness and higher sales volumes realized in-basin, either at terminals or through PropStream, is an indication of the healthy business environment we expect going forward.
Not the same company it used to be
With its Kermit facility up to full speed, more than 80% of its entire production capacity under long-term takeaway contracts, and a fast-growing last-mile logistics service, Hi-Crush Partners seems to have a found a groove that should lead to much better results in the coming quarters. It's generating more than enough cash to cover its obligations and distributions. So much so that it plans to buy back an additional $70 million in shares. Investors who were scared away during the most recent crash may want to take another look at the stock because it's a fundamentally different company than it was just a couple of years ago.