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2Q17 Results Analysis: Why Flotek Industries Stock Is Falling

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

What Could Drive Flotek Industries’ Growth?

Flotek Industries’ growth path

Flotek Industries’ (FTK) management expressed optimism about improving pricing for FTK’s complex nano-Fluid (or CnF) products despite higher raw material costs. In the 2Q17 conference call, Flotek Industries’ chair and CEO, John Chisholm, commented, “Our clients are showing signs of receptivity to a period of increasing pricing as we experienced domestic complex nano-Fluid or CnF revenue outpace volume growth in the quarter, while gross margins expanded by 135 basis points. This is truly an incredible accomplishment as you consider the raw material inflation of citrus products, which we believe will begin to moderate.”

FTK makes up 0.05% of the iShares Core S&P Small-Cap ETF (IJR). IJR rose 14% in the past year compared to a 59% decrease in FTK’s stock price. The S&P 500 Index (SPX-INDEX) has risen 14% in the past year.What Could Drive Flotek Industries’ Growth?

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FTK’s 3Q17 outlook

  • The Energy Chemistry Technology segment’s revenue expanded in the low to mid double digits in 3Q17 over 2Q17. The company estimates that its segment margins could improve 1% to 2% in 3Q17.
  • The Consumer and Industrial Chemistry Technologies revenues fell in the mid teens in 3Q17 over 2Q17. The segment’s EBITDA margin could improve marginally.

Flotek Industries’ capacity addition

  • By the end of 2Q17, FTK’s capacity was above 1.5 million gallons of CnF per month. The company plans to expand capacity to about 2 million gallons per month by 2018.
  • In the Monahans facility in the Delaware Basin, WFT increased throughput by ten times since 1Q17.
  • FTK completed an expansion in the Marcellus and Utica regions. This new facility is under a multiyear lease and will allow FTK’s business to expand more quickly into the US northeast region.
  • Flotek Industries’ management expects the new facilities to contribute approximately $0.50 a gallon of gross margin on a variety of product sales.

Next, we’ll discuss FTK’s growth drivers in detail.

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