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What Could Fuel Flotek Industries after 2Q16?

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Aug. 12 2016, Updated 8:05 a.m. ET

Flotek Industries’ revenue and operating income

From 2Q15 to 2Q16, all of Flotek Industries’ (FTK) segments except for the Consumer and Industrial Chemical Technologies segment saw lower revenues. FTK’s Drilling Technologies segment suffered the highest revenue fall of 48%, while its Consumer and Industrial Chemical Technologies segment’s revenue rose by 34%.

The 2Q16 revenue of CARBO Ceramics (CRR), FTK’s small-market-cap peer, fell by 72% compared to 2Q15. CRR’s market capitalization stands at $334 million compared to FTK’s $871 million.

By operating income, FTK’s Energy Chemical Technologies segment fell by 36% in 2Q16 compared to 2Q15. On the other hand, the Consumer and Industrial Chemical Technologies segment’s operating income remained unchanged during the same period.

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Explaining Flotek Industries’ income

In 2Q16, FTK’s reported net income was -$2.3 million. This was an improvement compared to 2Q15, when FTK reported net income of -$12.5 million. Compared to 1Q16, when its net income was -$30 million, Flotek Industries’ bottom line has improved tremendously.

FTK’s year-over-year income has improved mostly on account of higher sales prices and volume increases in its Industrial Chemistry Technologies segment.

This was partially mitigated by a lower rig count, reductions in customer demand, price concessions for FTK’s drilling technologies products, and lower CnF (nano-fluid technologies products) sales volumes and revenues.

Flotek Industries makes up 0.26% of the iShares S&P Small-Cap 600 Value ETF (IJS). The energy sector accounts for 3.8% of IJS.

What operational drivers could fuel Flotek Industries?

  • FTK has gained traction in the Middle East.
  • FTK is focused on offering customized precision chemistry in North America.
  • FTK has seen stability in its downhole and production technologies businesses.
  • FTK’s chemistry business has also started to improve after hitting a low in April.

How dependent is Flotek Industries’ business on the US rig count? Let’s discuss this in the next article.

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