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Hi-Crush (HCLP) Releases Q4 Operational & Financial Updates

Zacks Equity Research

Hi-Crush Partners LP HCLP provided operational and financial updates for fourth-quarter 2018 along with updated outlook.

The partnership reported sales volumes of roughly 2 million tons for the fourth quarter, down around 28.8% sequentially from roughly 2.8 million tons sold during the third quarter. The figure is also lower than the previous projection of 2.3-2.5 million tons.

Per Hi-Crush, fourth quarter sales volume were affected by greater-than-expected weakness in completions activity and timing of customer demand along with typical seasonal slowdowns.

Hi-Crush announced new contracts with E&Ps for PropStream services and Northern White sand, which are slated to begin in the first quarter of 2019. The contracts executed by the partnership with E&Ps till date support around half of Northern White frac sand production capacity. The contracts also commit to the additional PropStream systems and crews in the Northeast with leading operators in the region.

Additionally, Hi-Crush announced pricing amendments to some of its sand supply agreements supporting the Kermit complex. Notably, construction at the second Kermit production facility was completed in December 2018. The second Kermit facility has annual capacity of 3 million tons and is located a mile to the west of the first Kermit facility.

The facilities produce a single product, 100 mesh Permian Pearl frac sand. Volumes produced from the two facilities are mined from the same reserves. Also, the reserve life for the Kermit complex is projected to be roughly 17 years.

Recently, Hi-Crush completed field testing successfully for the new FB Atlas top-fill conveyor system with an existing E&P customer. The move supports the expansion of the PropStream services.

The partnership’s board of directors also announced the decision to suspend quarterly distribution. The move is in response to the challenging conditions experienced in the fourth quarter. It reflects the partnership’s commitment to financial discipline and maintaining a strong balance sheet.

Hi-Crush believes that some of the market dynamics that coalesced in the fourth quarter are transitory in nature. It expects activity to improve in 2019 but also stated that the pace of improvement is uncertain.

Moreover, demand and supply dynamics for frac sand is expected to improve courtesy of slowdown in the construction of new in-basin supply, more capacity shut downs and strengthening demand fundamentals. Overall, the partnership expects that some headwinds are likely to prove more persistent than previously expected, keeping the environment challenging for Northern White sand.

Hi-Crush is focused on improving cost structure from the mine to the last mile. Per the partnership, its financial position and operational priorities are aligned to support success in 2019 and beyond.

Shares of Hi-Crush have plunged 70.9% in the past six months compared with the industry’s 10.6% decline.

Zacks Rank & Stocks to Consider

Hi-Crush currently carries a Zacks Rank #4 (Sell).

A few better-ranked stocks in the basic materials space is Ingevity Corporation NGVT, sporting a Zacks Rank #1 (Strong Buy); along with CF Industries Holdings, Inc. CF and Cameco Corporation CCJ, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Ingevity has an expected earnings growth rate of 21.5% for 2019. The company’s shares have gained 13.8% in the past year.  

CF Industries has an expected earnings growth rate of 70.5% for 2019. The company’s shares have moved up 3.8% in the past year.

Cameco has an expected earnings growth rate of 20% for 2019. Its shares have rallied 25.1% in a year’s time.

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