What’s Flotek Industries’ Guidance for 4Q16?

Flotek Industries’ guidance

On December 20, Flotek Industries (FTK) released an update on 4Q16’s segment-wise revenue and margins. The company’s management expects FTK’s Energy Chemistry Technologies revenue to rise 10%–15% between 3Q16 and 4Q16. The guidance is based on higher energy prices and a rising rig count in the United States. However, the company expects the segment’s gross margin to narrow to 38%–40% in 4Q16, compared with 40.4% in 3Q16.

The company expects the Consumer and Industrial Chemicals Technologies (or CICT) segment’s revenue to fall $2.5 million–$3.5 million between 3Q16 and 4Q16. Seasonal demand fluctuations, changes in product mix, and a greater focus on terpene development are expected to drag down sales in the CICT segment.What’s Flotek Industries’ Guidance for 4Q16?

Management comments

Flotek Industries’ management is not certain whether the energy industry has started recovering. Chairman and CEO John Chisholm stated that “while business trends at the inflection point of any cycle are typically more volatile than normal, we are pleased with the way the fourth quarter is developing, especially that the ‘holiday slowdown’ that concerned us does not appear to be nearly as significant as we earlier expected. While there is significant work ahead to make sure Flotek continues toward its goal to become the leader is oilfield completion chemistry, we believe the increase in industry activity in the last 60 days could be a signal that better opportunities and a more constructive operating environment are in store as we enter 2017.”

Peer comparison

FTK makes up 0.06% of the iShares Russell 2000 Growth ETF (IWO). The energy sector makes up 1.4% of IWO. Between 2Q16 and 3Q16, FTK’s revenue rose 2%. In comparison, Weatherford International’s (WFT) fell 3%, FMC Technologies’ (FTI) fell 5%, and Superior Energy Services’ (SPN) fell 8%. For the latest on FTI, read Is FMC Technologies’ Merger with Technip Almost Complete? The December 20 management update resulted in FTK’s implied volatility rising steeply, which we’ll discuss next.