Diversified fuel producer
CONSOL Energy Inc.
(
CNX
) reported operating earnings of 31 cents per share for the second
quarter of 2012, a penny lower than the Zacks Consensus Estimate.
Earnings were approximately 6% below the year-ago quarter's
earnings of 34 cents.
Earnings, during the quarter, excludes a favorable impact of $82
million from a combination of gains from the sales of some non-core
properties, a charge for reclamation and selenium at the Fola
Complex, and a charge for the expiration of certain shallow gas
leases.
Considering these one-time items, CONSOL Energy posted net income
of 67 cents in the quarter under review, comparing favorably with
34 cents earned in the year-ago quarter.
Revenue
CONSOL Energy's quarterly revenue decreased 8% to $1.45 billion
from $1.59 billion in the year-ago quarter. The top line
comfortably surpassed the Zacks Consensus Estimate of $1.33
billion.
Operational Update
During the quarter, total costs went down 16% to $1.24 billion from
$1.49 billion in the year-ago quarter. A lower cost of goods sold,
gas royalty interests costs, purchased gas costs, freight expense,
selling, general and administrative expenses as well as interest
expense aided the decline.
Earnings Before Interest, Tax and Depreciation and Amortization
(EBITDA) improved 29% year over year to $414 million in the
quarter.
Segment Performance
Coal Division
In the quarter under review, the company produced 14.6 million tons
of coal, of which 1.1 million tons constituted low-volatile
metallurgical coal, 1.2 million tons were of high-volatility and
12.2 million tons were thermal coal. Out of the total thermal coal
production, 11 million tons came from Northern Appalachia while 1.2
million tons were from Central Appalachia. The company's thermal
coal inventory expanded by 0.1 tons from the previous quarter.
The average realized price for low-volatile metallurgical coal was
$121.58 per ton, while the same for high-volatile metallurgical
coal was $61.22 per ton. Realized prices for the company's thermal
coal production improved 3.5% to $61.29 per ton in the quarter. The
combined effect lowered the overall average realized price per ton
to $66.00 from the $74.63 realized in the year-ago quarter.
Total costs per ton, in the reported quarter were $52.23, up 1%
year over year, mainly due to idling of the Blacksville and
Buchanan longwalls during the quarter.
Gas Division
During the reported quarter, the company registered year-over-year
growth in gas production volumes in Marcellus Shale, but had lower
volumes from Coalbed Methane and Shallow, leading to a substantial
decline in production volumes.
However, the average realized gas price decreased by 21.5% to $3.98
per Mcf from $5.07 per Mcf in the year-ago quarter.
Financial Update
As of June 30, 2012, cash and cash equivalents were $200.2 million,
down 47% from 2011-end level.
Long-term debts, as of June 30, 2012 were $3.17 billion, flat with
the 2011 year-end level.
Cash flow from operations totaled $138 million in the quarter,
dipping almost 62% from $360 million in the year-ago quarter.
Capital expenditure totaled $408 million in the quarter, up 23%
year over year.
Guidance
CONSOL expects third quarter 2012 coal sales to be 14.9 million
tons and 2012 coal production to be 59.4 million tons. The company
expects coal production in 2013 and 2014 to be 57.6 million tons
and 62.0 million tons, respectively.
CONSOL expects third quarter 2012 gas production to be in the range
of 40-42 Bcf (billion cubic feet), and 2012 production to be in the
band of 157-159Bcf.
Peer Comparison
Peabody Corporation
(
BTU
) reported second quarter 2012 earnings of 73 cents per share,
beating the Zacks Consensus Estimate of 53 cents. However, the
company's profits were lower than the last year's earnings of $1.16
per share.
The year-over-year decline was due to higher interest expenses and
depreciation, depletion and amortization expenses related to the
acquisition of Macarthur Coal in Australia.
Peabody's quarterly revenue was $1,998.2 million versus $1,980.5
million in the prior-year quarter, reflecting year-over-year growth
of 0.9%.
The company's revenue for the quarter fell short of the Zacks
Consensus Estimate of $2,067 million.
The company expects earnings per share in the third quarter of 2012
to be in the range of 20 cents to 45 cents.
Our View
CONSOL's decision to invest more in liquid-rich assets and shy away
from natural gas activities bodes well in the present depressed gas
price scenario. We believe its deep and diversified portfolio puts
it at an advantage compared to its peers.
However, dependence on a small group of consumers for bulk sales,
along with stricter legislations and rigid penalties on underground
mining, is a cause of concern for underground miners like CONSOL
Energy.
Nevertheless, its financial strength and increasing demand for
thermal coal from developing Asian countries will benefit this
low-cost coal producer.
We have a Neutral recommendation on CONSOL Energy. It
presently retains a Zacks #3 Rank, which translates into a
short-term Hold rating.
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CONSOL ENERGY (CNX): Free Stock Analysis Report
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