October 23, 2018 / 10:29 AM / 20 days ago

UPDATE 2-U.S. Silica misses estimates, sees frac sand price recovery in 2019

(Adds details from conf call, analyst comment, shares)

By Shanti S Nair

Oct 23 (Reuters) - U.S. Silica Holdings missed analysts’ estimates for quarterly profit on Tuesday, as fewer oil well completions hit demand for its frac sand, and said it expected substantial price and margin recovery only in the second quarter of 2019.

The company’s shares slumped as much as 17 percent to a near six-year low.

A tight pipeline capacity in the top shale region of Permian has hampered efforts by U.S. producers to capitalize on the recent jump in crude oil prices, which was also reflected in the latest quarterly reports from oilfield service providers.

Fracking sand supplied by U.S. Silica is used in hydraulic fracturing where it is pushed into wells under high pressure to free oil and gas trapped in shale rocks.

The company said revenue from its oil and gas proppants business, its biggest, rose about 5.6 percent to $302.5 million in the third quarter, a steep decline from the 38 percent the company posted in the preceding quarter.

“Frac sand fundamentals will continue to deteriorate near-term,” Tudor Pickering & Co analyst George Leary said.

“They need to focus on executions, cost cutting, and we’d like to see them shut in some higher cost frac sand mines,” he said.

Supply-demand gap is expected to tighten in 2019, with a substantial rebound in pricing and margin by the second quarter of the year, company executives said on a conference call.

The company’s net income fell to $6.3 million, or 8 cents per share, in the third-quarter ended Sept. 30, from $41.3 million, or 50 cents per share, a year earlier.

The quarter included a charge of $7 million related to the acquisition of EP Minerals.

U.S. Silica bought EP Minerals, a producer and supplier of industrial minerals, for $750 million to help weather the softness in the frac sand market.

Excluding items, U.S. Silica earned 44 cents per share, missing analysts’ estimates of 59 cents per share, according to Refinitiv data.

Total revenue rose 22.7 percent to $423.2 million, but came in below expectation of $467.9 million.

The company’s shares regained some ground and were down 11 percent at $13.96 in late-morning trading. (Reporting by Shanti S Nair in Bengaluru; Editing by Shailesh Kuber and Sriraj Kalluvila)

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