U.S. Silica (SLCA): What Will Q2 Earnings Release Unveil?

U.S. Silica Holdings, Inc. (NYSE:SLCA) is set to release second-quarter 2016 results after the closing bell on Aug 2.

Last quarter, this producer of commercial silica had delivered a positive earnings surprise of 32.14%. U.S. Silica surpassed the Zacks Consensus Estimate in two of the trailing four quarters, while missing in the other two, with an average positive surprise of 9.08%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

U.S. Silica witnessed persistent pressure on both volumes and pricing in its Oil and Gas segment during first-quarter 2016, due to weaker business conditions and increasingly competitive market environment. However, the company's Industrial and Specialty Products segment recorded improvement in its business, recording sequential and year-over-year increases in contribution margin, bolstered hugely by a combination of strategic price increases implemented earlier in 2016 and a larger mix of higher-margin products during the quarter.

In 2016, the company plans to eliminate roughly $40 million in costs above the $40 million in expenses that it took out last year. It is taking further actions to cut overheads, increase operational efficiency, optimize shipping and renegotiate supplier contracts. Though some of these costs are expected to come back as energy markets improve, the company expects that most of the savings will be permanent and will further elevate its competitive position in the marketplace.

The company aims to manage its cash wisely and give priority to critical-maintenance and cost-improvement projects. At the same time, the company plans to internally simplify by eliminating unnecessary and cumbersome processes and procedures and improving customer response times.

U.S. Silica believes that it is in a stronger position to achieve meaningful accretive M&A, considering its recently-completed equity offering. It projects that oil prices, while relatively stable at the moment, will remain lower-for-longer, and that the company will continue to face challenges from lower drilling and completion activity, an intensely competitive market and lower industry demand for its Oil and Gas products in the near-term.

For the Industrial business, the company expects to record a healthy bottom-line growth in 2016, supported by the price hikes and the consistent rollout of new higher-margin products. A significant portion of the ISP business is tied to the automotive and residential housing markets, and demand from these key end-use markets is expected to stay solid in 2016.

Earnings Whispers

Our proven model shows that U.S. Silica is likely to beat earnings because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is the case here, as you will see below.

Zacks ESP: Earnings ESP for U.S. Silica is +8.70%. This is because the Most Accurate Estimate stands at a loss of 21 cents, while the Zacks Consensus Estimate is pegged at a loss of 23 cents.

Zacks Rank: U.S. Silica currently has a Zacks Rank #2 (Buy) which has a significantly higher chance of beating earnings.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies in the basic materials sector you may want to consider instead, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

B2Gold Corp. (NYSE:BTG) has an Earnings ESP of +50% and a Zacks Rank #1 (Strong Buy).

Hi-Crush Partners LP (NYSE:HCLP) has an Earnings ESP of +4.35% and a Zacks Rank #3 (Hold).

Alamos Gold, Inc. (TO:AGI) has an Earnings ESP of +100% and a Zacks Rank #3.