Smart Sand Rewards Bears as Higher Production Costs Sink Results

(Bloomberg) -- Fracking supplier Smart Sand Inc. fell the most ever after rising expenses at its Oakdale, Wisconsin, mine caused its first quarter earnings to miss the lowest analyst estimates.

The shares sank as much as 23 percent, their biggest drop since Smart Sand’s initial public offering in November 2016. That move was welcomed by short sellers who had piled into the stock in recent months. Short interest touched a high of 35 percent of float on May 8, up from 12 percent a year ago, according to data compiled by IHS Markit Ltd.

Smart Sand is expanding its primary mine in Wisconsin, which excavates a specialty material called Northern White raw frac sand. While sales and volume increased in the first quarter, production costs were $20.95 a ton, up from $14.79 in the prior period and above the company’s forecast of $18 to $20. Smart Sand told investors on a conference call Thursday that the higher production costs were mostly due to contract labor expenses and winter weather. The company is still targeting an average of $12 to $14 per ton for the full year.

“Cost and volume have been the major issues for SND of late so not sure investors will afford them a hall pass today,” Tudor Pickering analysts said in a note to clients. Investors “need to see cost/ton shrink and volume growth gain steam to get more comfortable with this story.”

Piper Jaffray analyst John Watson was more optimistic, saying in a note that production costs will “inevitably” go down as the weather improves.

To contact the reporter on this story: Austin Weinstein in New York at aweinstein18@bloomberg.net.

To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net, Catherine Larkin, Steven Fromm

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