Frac sand is producing rock-solid profits for Hi-Crush Partners. Photo credit: Flickr/Mike Baird.
Hi-Crush Partners LP (HCLP +0.00%) continues to benefit from delivering sand to be used in fracking operations. The company recently reported excellent fourth-quarter and full-year earnings as its integrated model is fueling profits for its investors. Let's take a closer look at the company's most recent results.
The numbers that matter
Hi-Crush Partners sold 588,471 tons of frac sand last quarter producing $51.5 million in revenue. This was well ahead of the 248,158 tons of frac sand the company sold in last year's fourth quarter for $16.2 million. Hi-Crush Partners also enjoyed higher prices for its sand as the company's average selling price on the quarter was $74 per ton, well above the $65 per ton for which the company sold its sand in the previous fourth quarter.
In addition to higher prices, Hi-Crush Partners increased its profits by lowering its production costs. Sand produced and delivered from its key Wyeville facility fell to $12.50 per ton on the quarter. This was well below the $15.49 per ton it cost the company to produce and deliver sand in last year's fourth quarter. Because of this Hi-Crush Partners continues to be the low-cost leader in its sector.
Rock-solid income
Higher sales and prices when combined with lower costs enabled the company to enjoy solid cash flow on the quarter. Overall, Hi-Crush Partners delivered distributable cash flow of $20.4 million in the fourth quarter. This was well in excess of the $14.7 million in distributions the company paid to investors in the quarter.
It represented a very solid 1.38 times distribution coverage ratio, meaning the company's distribution to investors isn't on sandy ground. This is in spite of the fact that the company recently raised its distribution to investors by 7%. Given its strong coverage ratio and future outlook, the company expects to continue delivering low double-digit annual distribution growth for the foreseeable future.
Looking ahead
Last year was a strong year for proppant producers as these stocks were among the surprising winners of 2013. In addition to Hi-Crush Partners, its peers U.S. Silica Holdings, Inc. (SLCA +0.00%) and CARBO Ceramics (CRR +0.00%) continue to benefit from strong proppant demand. That should continue in 2014 as Hi-Crush sees an increased usage of sand by the energy industry as companies continue to use higher proppant volumes to frac new wells.
As the following chart shows, proppant volume consumed is expected to increase every year:
Source: Hi-Crush Partners.
Not only will demand for the raw frac sand that Hi-Crush Partners and U.S. Silica Holdings produce increase, but so will demand for U.S. Silaca's resin-coated sand as well as the ceramics produced by CARBO Ceramics.
Investor takeaway
Proppants continue to be a great way for investors to profit from the fracking boom. Hi-Crush offers investors a solid current yield that's expected to grow by double digits for the foreseeable future. That makes it an intriguing stock for income-seeking investors.
