Carbo Rises After Beating Analysts’ Cost Estimates: Dallas Mover

Carbo Ceramics Inc. (CRR), the world’s largest supplier of man-made fracking sand for the oil and natural gas industry, rose the most in almost three years after its third quarter profits beat analysts’ estimates.

Carbo Ceramics, based in Houston, climbed 18 percent to $71.74 at the close in New York, the most since Oct. 29, 2009.

After reporting lower-than-expected costs, the company beat by 11 cents the average of 13 analysts’ earnings estimates compiled by Bloomberg. Carbo makes tiny ceramic balls called “proppant” that are used to prop open cracks in underground rock after a well has gone through hydraulic fracturing.

Third-quarter net income dropped to $23.9 million, or $1.04 a share, from $36.9 million, or $1.59, a year earlier, Carbo said today in a statement. Sales fell 9.5 percent to $151 million.

Results were “positive, especially in light of low expectations and very weak industry anecdotes about the proppant market in general,” analysts at Tudor Pickering Holt & Co. wrote today in a note to investors. “Expense improvements stood out.”

Carbo cut its costs for the category known as selling, general and administrative, or SG&A, by 9.2 percent to $15.1 million. Trey Stolz, an analyst at Iberia Capital Partners in New Orleans, was expecting costs of $17.3 million, according to a note to investors.

Understanding Costs

“The more we dig into this, the more we need to understand about SG&A and proppant pricing,” Stolz said today in a telephone interview. He rates the shares at underperform, which means investors should sell the stock.

Once-surging profits from hydraulic fracturing, or fracking, are fading as oil and gas producers become more cautious about spending amid lower energy prices and global economic troubles that are damping demand.

The main factor affecting Carbo is an oversupply of more than 1 billion pounds of ceramic proppant, John Keller and Michael Marino, analysts at Stephens Inc. in Houston, wrote Sept. 24 in a note to investors.

Fracking equipment now exceeds demand by 30 percent, measured by the amount of horsepower available to drive the fracturing process, with about 15.6 million horsepower competing to meet demand for 12 million, according to PacWest Consulting Partners LLC, a Houston-based industry adviser.

Prices charged for fracking services are expected to drop 14 percent this year and another 8 percent next year, according to PacWest.

To contact the reporter on this story: David Wethe in Houston at dwethe@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

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