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2Q17 Results Analysis: Why Flotek Industries Stock Is Falling

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Part 3
2Q17 Results Analysis: Why Flotek Industries Stock Is Falling PART 3 OF 6

What Affected Flotek Industries in 2Q17?

Flotek Industries’ revenue growth by segment

We’ll now look into Flotek Industries’ (FTK) segment performance in 2Q17. Revenues in the Energy Chemistry Technology (or ECT) segment rose 2% in 2Q17 over a year ago. The Consumer and Industrial Chemistry Technologies (or CICT) segment revenue, on the other hand, fell 7% during the same period. Flotek Industries makes up 0.06% of the iShares S&P Small-Cap 600 Value ETF (IJS). Since June 30, 2017, IJS fell 1% compared to a 32% decline in FTK’s stock price.

Revenue growth compared with peers

The revenues of Baker Hughes, a GE Company (BHGE), remained unchanged in 2Q17 over 2Q16, while Fairmount Santrol Holdings’ (FMSA) revenues more than doubled during the same period. From 2Q16 to 2Q17, Nabors Industries’ (NBR) revenues rose ~10%. Read more on NBR in Market Realist’s Nabors Industries’ 2Q17 Earnings Missed Estimates.

What Affected Flotek Industries in 2Q17?

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Operating income growth

The Energy Chemistry Technology segment’s operating income rose 21.7% in 2Q17 over 2Q16. The Consumer and Industrial Chemistry Technologies segment witnessed a ~55% operating income decline during the same period.

Flotek’s positive growth drivers

  • higher demand for prescriptive chemistry management platform
  • CnF price increases leading to expanding margins
  • 143% expansion of FTK’s CnF volumes from mid-2014 until 2Q17
  • asset sales enabled debt repayment

Flotek’s negative growth drivers

  • weaker-than-expected results in Canada, FTK’s largest international geography
  • the negative effect from raw material inflation in the citrus market (FTK’s CICT segments processes citrus oil, which is used in the consumer and oil & gas industry)

We’ll discuss the effect of the rig count and upstream operators’ capex on FTK’s financial performance next.

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