CARBO Ceramics previously reported that it had sold its fracture and reservoir diagnostics business to Halliburton Energy Services, Inc. Because of the transaction, which closed on October 10, 2008, the 2008 operating results of this business have been accounted for as discontinued operations. Continuing operations include the company’s ceramic proppant, software, consulting services and geotechnical monitoring businesses.
President and CEO Gary Kolstad commented, Given the challenging market conditions we faced during the quarter, we are pleased with our operating results. Notwithstanding significant sequential reductions in both the North American average rig count and natural gas commodity price, CARBO Ceramics was able to leverage off the operating success that was achieved during the second half of 2008, including the continued demand for our newest product, CARBO Ceramics HYDROPROP(TM).
First Quarter Results
Worldwide proppant sales volume totaled 253 million pounds for the first quarter of 2009, representing a year-over-year decrease of 11% and a sequential decrease of 14%. Proppant sales volume in the US and Canada decreased eight% compared to the first quarter of 2008 and 16% sequentially, despite the significant drop in commodity prices and reduction in the average number of drilling rigs experienced both year-over-year and sequentially. During the first quarter of 2009, overseas proppant sales volume decreased 46% compared to the same period last year and decreased 30% sequentially.
Operating profit for the first quarter of 2009 increased $6.2 million compared to the first quarter of 2008 due primarily to product mix, a decrease in freight costs and the cumulative effect of pricing increases introduced during the second half of 2008. Selling, general and administrative expenses increased in both absolute terms and as a% age of revenue for the first quarter of 2009 compared to the same period last year due to increased expenses associated with marketing and sales activities, certain relocation initiatives, the company’s new enterprise resource planning system and the company’s allowance for doubtful accounts.
Income from continuing operations for the first quarter of 2009 increased $3.6 million compared to the first quarter of 2008.
As previously disclosed, on August 28, 2008, the company’s board of directors authorized the repurchase of up to two million shares of the company’s common stock. During the first quarter of 2009, the company repurchased 444,700 shares at an aggregate cost of $14.3 million. As of March 31, 2009, the company had repurchased and retired about 1.5 million shares.
Technology and Business Highlights
Highlights for the first quarter of 2009 included:
— CARBO Ceramics’ penetration in the tight gas and shale resource plays continued to grow. Year-over-year, growth was experienced in the Rockies region, and in the North Louisiana and East Texas region, including the Haynesville shale reservoir. In spite of overall low commodity pricing, the E&P community continues to recognize the economic benefits that highly conductive ceramic proppant bring to both conventional and unconventional plays.
— CARBO Ceramics’ geotechnical monitoring company, Applied Geomechanics, Inc., assisted the Colorado department of transportation in an important rockfall netting and support structure design project. The controlled experiment utilized a series of fiber optic strain gauge sensors to evaluate the effectiveness of various combinations of rockfall mitigation devices.
— CARBO Ceramics has rebranded its fracture consulting group. StrataGen, with global coverage and expertise in fracture optimization and effective reservoir drainage, is assisting E&P organizations in maximizing the flow capacities of their reservoirs.
Outlook
CEO Gary Kolstad commented on the outlook for the company, stating, Although we achieved solid results this quarter, we were not immune to the rapid and large decrease in global upstream activity, as we experienced a decrease in global sales volume of 11% year-over-year and 14% sequentially. The rate and magnitude of the deterioration in North American drilling activity that occurred over the last several months, fueled by low natural gas and oil prices and the continued weakness in the US credit markets, has presented our customers with formidable financial challenges.”
“As such, we have started to negotiate reduced pricing arrangements in an effort to mitigate some of our anticipated sales volume erosion. While we recognize that the significantly reduced natural gas drilling activity should bring the natural gas fundamentals back into balance, we do not see any significant recovery before 2010. However, we believe the strength of our balance sheet will provide us the means to weather this downturn. In fact we remain committed to our capacity expansion efforts at our Toomsboro, Georgia facility and our technology development activities and continue to investigate strategic acquisition opportunities. Nonetheless we continue to implement prudent cost control initiatives in certain areas of the business, including discretionary and capital spending.
