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Fairmount Santrol Takes a Hit in Second Quarter


Fairmount Santrol announced preliminary financial results for the second quarter of 2016. Second-quarter 2016 revenues are expected to be between $113 million and $115 million, compared with $145.5 million for the first quarter of 2016 and $221.3 million for the same quarter in 2015.

Overall volumes sold are expected to be between 1.9 million and 2.0 million tons for the second quarter, compared with 2.1 million tons in first-quarter 2016 and 2.2 million tons for the same quarter in 2015.

The expected declines, as compared with the company’s first-quarter 2016 results, are due to increased pressures on all proppant volumes – particularly within its coated proppant offerings – and to lower prices across its Proppant Solutions segment. Partially offsetting these declines was a strong performance from the company’s Industrial and Recreational segment that is expected to deliver a sequential increase in volume.

During the second quarter of 2016, the company re-evaluated its facilities footprint, giving consideration to both market dynamics and to the full impact of the recently implemented capacity expansion at its primary, lower-cost facility in Wedron, Ill. Based on this evaluation, the company expects to take impairment charges related to certain, higher-cost idled facilities, which in total are expected to be approximately $91 million for the second quarter of 2016.

The company expects a second-quarter 2016 net loss of between $91 million and $93 million, or $(0.56) to $(0.58) per diluted share. The company’s estimated net loss range includes the $91 million of expected charges from non-cash impairments noted above, estimated stock compensation expense of $3 million and an estimated $17 million related to inventory write-downs, restructuring costs and fees committed for additional cost reduction initiatives.

This compares with a net loss of $11.8 million, or $(0.07) per diluted share, in the first quarter of 2016. Net income for second-quarter 2015 was $14.1 million, or $0.08 per diluted share.

Jenniffer Deckard, president and chief executive officer, said, “While we have continued to improve our efficiencies and reduce our costs, market conditions for our Proppant Solutions segment remained particularly challenging in the second quarter, including an estimated 25 percent sequential decrease in quarterly average U.S. rig counts. Consequently, we experienced additional pressure on both proppant volumes and pricing.

“During the second quarter of 2016, we invested in several areas to further improve our cost structure for the coming quarters, which we estimate will deliver annual cash savings of between $20 million and $25 million. These anticipated savings are in addition to our previously reported cost reductions,” Deckard continued.

“As we finalize our restructuring and move into the second half of 2016, we are also encouraged by the early signs of improvement we are seeing in the proppant market, including a progressive rebalancing of hydrocarbon supply and demand, oil prices in the $45 to $50/bbl. range over a sustained period of time, rig count additions in the latter half of the second quarter, draw-downs on the inventory of drilled but uncompleted wells, the continued trend of increasing proppant volumes per well, and the reviving of well designs using resin-coated proppants. In addition, our Industrial and Recreation business continues to deliver solid performance. While the market remains unpredictable in the near term, we continue to believe Fairmount Santrol is well positioned for the eventual recovery,” Deckard concluded.