Shares of fracking sand and industrial materials provider U.S. Silica (NYSE:SLCA) fell fast and hard on Oct. 29, dropping nearly 15% as trading got underway. By roughly 11 a.m. EDT the stock was off its lows, but still down about 11.5%. The likely reason for the price weakness was the company's third-quarter 2021 earnings release.
On the top line, U.S. Silica's revenue came in at $267.3 million, up from $176.5 million in the third quarter of 2020. The year-over-year improvement was largely driven by an uptick in demand for its fracking sand and other energy industry offerings, which pushed year-over-year revenue higher by 114% in the company's oil and gas segment. The industrial and specialty products group saw a revenue increase of 14%. However, sales at both divisions were essentially flat compared to the second quarter of 2021. U.S. Silica posted an adjusted loss of $0.22 per share, a penny better than consensus estimates. Even though the improved sales in the oil and gas segment was a clear positive, overall the quarter was kind of a mixed picture.
However, the really notable issue was probably the forward-looking comments contained in the company's earnings release. Specifically, the company noted, "... sand and logistics demand moderated slightly during the quarter as completions activity slowed due to annual budget exhaustion at some customers. Additionally, this segment experienced a shift in customer mix with more spot sales at lower margins and higher costs..." That does not paint a particularly good backdrop for fourth-quarter results and investors appear to have reacted negatively, as you might expect. On top of this, there's even more uncertainty in the air, as the company recently announced that it was looking at strategic alternatives for its industrial and specialty products segment.
Energy prices have dramatically improved over the past year, lending support to exploration and production companies. However, drilling activity hasn't picked up as quickly or dramatically as it has during past energy price spikes. So energy industry suppliers like U.S. Silica are doing better, for sure, but the outlook isn't perhaps as clear or bright as some might like. And with the company's comments on the demand environment being what they are, it's not shocking that investors sold the stock off in early trading. Most investors, meanwhile, should probably stay on the sidelines here given the uncertainty in the company's energy business and the uncertainty posed by the strategic review of its industrial and specialty products operations. All in, for a relatively small company (the market cap is around $700 million) serving the highly cyclical energy industry, there's a lot that's up in the air right now.