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Will Lower Sales Volumes Dent Hi-Crush's (HCLP) Q4 Earnings?

Zacks Equity Research

Hi-Crush Partners LP HCLP is set to release fourth-quarter 2018 results on Feb 5, after the closing bell.

In the last reported quarter, the mining company delivered a positive earnings surprise of 16.1%. The company’s adjusted earnings for the quarter were 36 cents per share that beat the Zacks Consensus Estimate of 31 cents.

Revenues jumped roughly 27.7% year over year to $214 million. Also, the figure surpassed the consensus mark of $212.4 million.

Notably, Hi-Crush beat the Zacks Consensus Estimate in three of the trailing four quarters, with an average positive surprise of 1.7%.

The stock has plunged 66.3% in the past year compared with the industry’s 8.4% decline.

Will the partnership surprise investors this quarter or is it heading for a possible pullback? Let’s see how things are shaping up for this announcement.

Factors at Play

In January, the partnership issued its operational and financial updates for fourth-quarter 2018 along with updated outlook.

For the quarter, Hi-Crush expects sales volumes to decline around 28.8% sequentially to roughly 2 million. The figure is also lower than the previous projection of 2.3-2.5 million tons. The partnership stated that the sales volume is likely to be affected by greater-than-expected weakness in completions activity and timing of customer demand along with typical seasonal slowdowns.

Notably, the Zacks Consensus Estimate for total revenues for Hi-Crush is currently pegged at $149 million, reflecting an expected decline of 31% year over year and 30.4% sequentially.

Hi-Crush also 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. These 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 the sand supply agreements supporting the Kermit complex. Notably, construction at the second Kermit production facility was completed in December 2018.  

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

In response to the challenging conditions experienced in the fourth quarter, the partnership’s board of directors announced the decision to suspend quarterly distribution. The move reflects the partnership’s commitment to financial discipline and 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, which will pose challenges for Northern White sand.

Hi-Crush Partners LP Price and EPS Surprise


Hi-Crush Partners LP Price and EPS Surprise | Hi-Crush Partners LP Quote


Earnings Whispers

Our proven model does not show that Hi-Crush is likely to beat estimates this quarter. That is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below:

Earnings ESP: Earnings ESP for Hi-Crush is -20.00%. This is because the Most Accurate Estimate and the Zacks Consensus Estimate are currently pegged at a loss of 7 cents and a loss of 6 cents, respectively. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Hi-Crush currently carries a Zacks Rank #4 (Sell). Note that we caution against stocks with a Zacks Rank #4 or #5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks Poised to Beat Estimates

Here are some companies in the same space you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

New Gold Inc NGD has an Earnings ESP of +166.67% and carries a Zacks Rank #2.

Franco-Nevada Corporation FNV has an Earnings ESP of +3.05% and carries a Zacks Rank #2.

Teck Resources Ltd TECK has an Earnings ESP of +6.03% and carries a Zacks Rank #3.

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