Image Source: US Silica Holdings corporate website.
As the oil and gas industry's demand for hydraulic fracturing sand continues to dry up, US Silica Holdings (SLCA +0.00%) has seen its earnings results steadily decline for close to a year. Thankfully, though, the oil and gas industry isn't its only client, and that is preventing US Silica from taking heavy losses. Here's a quick snapshot of US Silica's most-recent quarter, and what investors should think of the company's performance as we head into 2016.
US Silica's quarter: The raw numbers
| Metric (in millions, except per share data) | Q4 2015 | Q3 2015 | Q4 2014 |
| Revenue | $136.1 | $155.4 | $249.6 |
| Operating income | ($12.6) | $4.1 | $43.5 |
| Net income | ($15.3) | $2.4 | $33.2 |
| EPS | ($0.29) | $0.04 | $0.62 |
Source: US Silica holdings earnings release.
Just like last quarter, US Silica's oil and gas proppant segment is suffering mightily. However, its industrial and specialty product segment has done well enough in the previous quarters that it has kept the company from diving completely into the red. As long as this segment can post decent results, it should keep US Silica from falling into the same financial doldrums as its competitors.
Source: US Silica earnings release, author's chart.
What happened at US Silica this past quarter
- US Silica sold 2.5 million tons in the quarter, an 18% decrease from the same time last year. Full-year sand sales came in at 10.0 million tons, just 8% lower than all of 2014.
- The company's industrial and specialty products segment produced a contribution margin in 2015 of $70.1 million, a 15% increase from 2014.
- Total cash on hand and debt levels stayed pretty much flat from the prior quarter, with $298 million in cash, and $491 million in total debt.
- On November 9th, the company's board of directors reduced its quarterly divided by 50%, to $0.0625 per share. It's most-recent dividend announcement on February 22nd also has the company paying a similar dividend.
What management had to say
According to CEO Bryan Shinn, US Silica is managing the downturn rather well, and has made some moves that should make it stronger when the market does turn:
Despite the headwinds, we increased market share in our Oil and Gas business by 50 percent, completed a record year for profitability in our Industrial and Specialty Products segment and generated free cash flow from operations. I believe the accomplishments achieved in 2015, coupled with the steps we are taking in 2016 to further reduce our costs, leverage our competitive advantages and protect our balance sheet will further strengthen our Company and position us well for long-term success.
Looking forward
One of the reasons US Silcia was able to generate free cash flow in 2015 was because the company can cut capital expenditures to bare bones without drastically compromising operations. The company is really going to put that to the test in 2016, as management expects to spend between $15-$20 million, which is less than half of the stripped-down capital-spending program from 2015. Because the company continues to experience so much uncertainty from the oil and gas market, management has decided not to give any financial guidance on revenue or EBITDA.
10-second takeaway
In the face of a brutal market for sales to the oil and gas industry, there are some real silver linings here that investors should be happy about going forward. The company's ability to generate free cash flow, and not have to prop up the business through debt or equity raises, means it has a better chance of surviving this downturn.
The fact that it's capturing greater market share bodes well for when the market for oil and gas does turn. It may take a while for US Silica to get back to pre-oil crash results, but the foundation is there.
