3 Things to Watch at CARBO Ceramics Inc. (CRR)

3. Improving logistics

Logistics pose a problem for many proppant suppliers. Transporting several million pounds of beads to a single well by train alone is impossible, since few wells are located near railroads. This requires trucking for at least part of a delivery. Couple that with relatively limited on-site storage at wells and you’ll see why companies such as CARBO choose to make deliveries “on the spot” as a well is being drilled. Unfortunately, logistics posed a big problem to the company last year as customers shifted their focus from natural gas to oil. Transportation costs increased significantly (due to manufacturing facility location), which led to a 20% drop in net income compared to 2011 despite revenue growth of 3%.

Living on a spot market doesn’t mean you can’t have contracted customers, but it adds an interesting and unpredictable element to any business. With that in mind, any announcements of new partnerships with new customers will be big news. That is because CARBO generated 49% of its total revenue in 2012 from just two customers: Halliburton Company (NYSE:HAL) and Schlumberger Limited. (NYSE:SLB). If the company’s deepwater proppant — due for launch by year end — can impress drillers with large underwater reserves, then CARBO’s future will instantly become much brighter. Additionally, creating distribution hubs closer to oil fields can help stave off increasing transportation costs. The company did just that in Bakken in 2012, so investors will want to eyeball any improvement to margins.

Foolish bottom line

There are many moving parts to every investment, but our work thus far should give you a pretty good look into CARBO’s businesses. I encourage investors to keep up with SEC filings from all of their holdings and potential investments. These documents contain much more information than is found in press releases. You can find this company’s latest annual paperwork in the SEC’s database.

The article 3 Things to Watch at 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 Halliburton.

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