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Hi-Crush Inc. (HCR) Down 40% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Hi-Crush Inc. . Shares have lost about 40% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Hi-Crush Inc. due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Hi-Crush's Earnings and Sales Surpass Estimates in Q3

Hi-Crush posted net loss of $268.5 million or $2.67 cents per share in third-quarter 2019 against net income of $27.1 million or 29 cents in the year-ago quarter.

Barring one-time items, adjusted loss per share was 3 cents, which was narrower than the Zacks Consensus Estimate of a loss of 6 cents.

Revenues declined 19.2% year over year to $173 million. However, the figure beat the Zacks Consensus Estimate of $166.4 million.

Total frac sand sold during the quarter was 2,685,736 tons, down 3.2% year over year. Total sales from frac sand fell 9.3% sequentially to $114.2 million in the third quarter.

Contribution margin per ton sold tumbled 54.1% year over year to $10.99 and fell 20.4% sequentially in the third quarter. Average sales price was $43 per ton in the third quarter, down 8.5% sequentially.

Per the company, market conditions softened for frac sand late in the third quarter. This was driven by persistent oversupply as well as further declines in activity, which led to lower pricing and profitability. 

Operational Update

Truckloads delivered by Pronghorn Energy Services rose 7% sequentially in the third quarter of 2019, including the last mile operations that were acquired on May 7, 2019. As of Sep 30, 2019, Hi-Crush had last mile crews operating in the Permian, Marcellus, Eagle Ford, Mid-Con, Powder River and Bakken regions.

The company is focused on making additional improvements to its proprietary monitoring, tracking and invoicing software suite — PropDispatch. This includes simplification and automation of various processes, including silo inventory tracking.

Moreover, NexStage Systems continued to deploy upgraded silo sets. Additional equipment sales surged 40% sequentially to $1.4 million in the third quarter.

Financial Position

At the end of the third quarter, the company had total liquidity of $95.9 million. This includes $48.4 million of cash along with $47.5 million in available borrowing capacity under its senior secured revolving credit facility (also known as the ABL Facility).  As of Sep 30, 2019, its ABL Facility remained completely undrawn.

Long-term debt was $445.2 million at the end of third-quarter 2019 compared with around $444 million in the year-ago quarter.

Net cash provided by operating activities during the first nine months of 2019 was $12.1 million, down from $195.3 million in the year-ago period.

Outlook 

Hi-Crush expects sand sales volumes, adjusted EBITDA and contribution margin per ton to decline sequentially in the fourth quarter. Per the company, impacts of E&P budget exhaustion along with other seasonal factors, including demand for frac sand and logistics services, are expected to exert pressure on margins.

The company is expected to continue to deploy last mile and wellsite equipment and crews in 2019 on the basis of recent field trials and customer conversations.

Per management, remaining customer capital budgets as well as holiday schedules and other year-end factors are expected to influence fourth-quarter results. The company expects sand volumes to decline by at least 10% in the fourth quarter. The company expects to continue lowering volumes and other activities, which does not indicate profitability. Overall, this dynamic is expected to persist in 2019.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -83.33% due to these changes.

VGM Scores

At this time, Hi-Crush Inc. has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Hi-Crush Inc. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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