Although non-proppant businesses generated less than $50 million in revenue in 2011 they are growing rapidly. The company notched full-year revenue growth of 33% for its consulting business, 46% for its software segment, and 21% for Falcon Technologies, its environmental risk reduction business. An industrywide focus on repairing the environmental image of fracking technologies caused Falcon’s client base to soar 25% in 2012.
Topping off the progress was total proppant sales of 1.71 billion pounds (1.54 billion pounds of ceramic proppants), which represented 10% of the total worldwide proppant market. Sales growth increased a measly 3% in the United States – the company’s key market – but jumped 25% internationally thanks to increased demand in China, Russia, and Mexico.
3. Growth opportunities
Although management expects 2013 to be another slow year in terms of drilling activity, the company is pursuing opportunities for the long term. A new facility in Georgia – the company’s seventh worldwide – will grow CARBO’s annual production capacity of ceramic proppant to 2 billion pounds in 2014, while a new distribution center opening this year will give an increased presence in the Bakken region.
A new ceramic proppant under development for use in ultra-deepwater drilling wells, such as those in the Gulf of Mexico and off the coast of Brazil, will be launched at the end of 2013. The product will be capable of sustaining depths greater than 30,000 feet; CARBO hopes to piggyback on the growth in the next frontier of offshore drilling.
This represents a potentially enormous opportunity for CARBO. Consider that ultra-deepwater driller Seadrill Ltd (NYSE:SDRL) has expanded from three rigs in 2005 to boasting the industry’s fifth-largest fleet. As of 3Q12 the company had over $21 billion in backlog revenue, which highlights the incredible future growth of the industry and provides plenty of incentives for CARBO to scale up production of its newest product.
Foolish bottom line
CARBO Ceramics may continue to battle low drilling activity in 2013, but there is a solid case to be made for the company’s long-term prospects. A focus on expanding non-proppant services in 2012 is an encouraging sign that management is trying to diversify. However, the company may be too dependent on proppant sales to a relatively select few markets. Investors will want to keep up with this new series of articles that will identify potential opportunities while acknowledging risks facing the company.
The article 3 Reasons to Buy CARBO Ceramics originally appeared on Fool.com and is written by Maxx Chatsko.
Fool contributor Maxx Chatsko has no position in any stocks mentioned. Check out his personal portfolio, his CAPS page, or follow him on Twitter @BlacknGoldFool to keep up with his writing on energy, bioprocessing, and emerging technologies.The Motley Fool recommends Seadrill. The Motley Fool owns shares of Hi-Crush Partners and Seadrill.
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