Industrial company Layne Christensen (LAYN) issued a top and bottom line beat after the close last night, marking back-to-back quarters in which the company has accomplished that feat. That may not seem like a very noteworthy achievement, but, it has been a long time since LAYN has put together two upside quarters in a row -- in fact, more than five years. Some of the inconsistency can be attributed to volatile commodity prices. However, LAYN has also made strides in taking some costs out of the company, paving the way for improved profitability.
Taking a closer look at last night's Q2 report, EPS came in at ($0.11), topping the Capital IQ consensus by $0.03. Revenue was up 2.1% year/year to $126.2 million, also ahead of the $122.9 million consensus. Again, the 2% growth may not look like much on the surface. But, LAYN's revenue had declined for eight straight quarters, so that unfortunate streak has finally come to an end.
The clear catalyst for the turnaround this quarter was strength in its Mineral Services segment. For those unfamiliar with LAYN, the company operates through three main segments: Water Resources (35% of revenue), Inliner (43% of revenue), and Mineral Services (22% of revenue).
In Q2, revenue in the Mineral Services segment jumped by 91% to $27.4 million, offsetting a significant decline in Water Resources. More on that below. The strength in Mineral Resources was driven by increased drilling from new and renewed business from customers in Mexico, the Western U.S, and Brazil. Adjusted EBITDA also increased by 27% to $5.2 million.
The strong performance there was needed because Water Resources did not enjoy nearly the same level of success. Specifically, revenue fell 21% to $44.8 million due to reduced activity for agricultural drilling projects in the west as increased precipitation in the region led to a decline in well activity. One of LAYN's core objectives is to enhance the profitability in this segment, and it made strides in doing this by cutting losses on certain projects it incurred in the later parts of its last fiscal year. So, despite the drop in revenue, its Adjusted EBITDA actually improved sharply from last quarter, jumping by nearly 200% to $1.4 million.
Looking ahead, LAYN is optimistic about its prospects as it continues to lower SG&A costs across the board and as it enters the energy infrastructure industry via its new high-capacity water pipeline in the Delaware Basin in West Texas. In fact, due to strong demand, the company is in the process of expanding its pipeline capacity.
In conclusion, while the company is still reporting losses and the topline growth is still quite modest, the improvements and momentum underlying its business are also evident -- explaining why shares are popping higher by 7.5% in pre-market action today.
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