Consol Energy Misses on Both Lines - Analyst Blog

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Diversified fuel producer CONSOL Energy Inc. ( CNX ) reported pro forma loss of 5 cents per share for the third quarter of 2012, substantially lower than the Zacks Consensus Estimate of earnings of 2 cents per share. Earnings were way below the year-ago quarter's earnings of 73 cents.

The bleak bottom-line results were due to a string of shutdown in operations at certain plants together with unplanned outages at the Enlow Fork and Bailey mines. Also, low sales from the Buchanan mine led to this heavy loss.

Total Revenue

CONSOL Energy's quarterly revenue decreased 23.7% to $1,160.1 million from $1,521.7 million in the year-ago quarter. The top-line fell short of the Zacks Consensus Estimate of $1,340.0 million.

Operational Update

During the quarter, total costs dropped 9.8% to $1,191.4 million from $1,321.3 million in the year-ago quarter. A steep decline in gas royalty interests costs of 31.5%, freight expense of 54.1%, cost of goods sold, purchased gas and selling as well as general and administrative expenses were responsible for the overall decline.

Earnings before Interest, Tax and Depreciation and Amortization (EBITDA) fell 52.3% year over year to $210.0 million in the third quarter 2012.

Segment Results

Coal Division

In the quarter under review, the company produced 11.6 million tons of coal, of which 0.8 million tons comprised of low-volatile metallurgical coal, 0.7 million tons were of high-volatility and 10.1 million tons were thermal coal. Out of the total thermal coal production, 9.3 million tons were sourced from Northern Appalachia while 0.8 million tons came from Central Appalachia. Consol's thermal coal inventory shrunk by 0.8 million tons from the previous quarter.

The average realized price for low-volatile metallurgical coal was $135.66 per ton, down 34.5% year over year, while the same for high-volatile metallurgical coal plunged 18% to $67.76 per ton. Realized prices for the company's thermal coal production improved marginally to $62.11 per ton from $60.18 per ton in the prior-year quarter.

Gas Division

During the reported quarter, the company recorded a slight decline in gas production volumes to 39.4 billion cubic feet ("Bcf"). Weak production levels in Coalbed Methane and Shallow prospects resulted in lower gas volumes. This was partially offset by rise in output at the Marcellus Shale.  

However, the average realized gas price decreased 14.8% to $4.19 per Mcf from $4.92 per Mcf in the year-ago quarter.

Financial Update

As of September 30, 2012, cash and cash equivalents were $231.0 million, down 38.5% from $376.0 million as of December 31, 2011.

Long-term debts, as of September 30, 2012 were $3.17 billion, flat with the 2011 year-end level.

Cash flow from operations totaled $162 million in the quarter, down approximately 64.5% from $457 million in the year-ago quarter.

Capital expenditure totaled $437.6 million in the quarter, up 6.2% year over year.

Guidance

CONSOL expects 2012 coal sales to be around 55.9 million tons. The company expects coal production in 2013 and 2014 to be 56.7 million tons and 61.8 million tons, respectively. In the fourth quarter 2012, Consol estimates coal sales to be 14.0 million tons.

CONSOL expects 2012 gas production to be in the band of 157-159 Bcf. The company estimates fourth quarter gas production to be roughly in the range of 42.5-44.5 Bcf.

Peer Comparison

Peabody Energy Corporation ( BTU ) reported third quarter 2012 earnings of 51 cents per share, surpassing the Zacks Consensus Estimate of 34 cents. However, the company's adjusted income was lower than last year's earnings of 90 cents per share.

The year-over-year drop was due to increased interest expenses, and depreciation, depletion and amortization expenses, partially offset by a reduction in selling and administrative charges.

Peabody's recorded revenue of $2,058.8 million compared favorably with $1,980.6 million in the prior-year quarter, representing year-over-year growth of 4%.

The company's revenue for the quarter surpassed the Zacks Consensus Estimate of $1,975 million.

Our View

CONSOL Energy's third quarter 2012 results were in-line with the negative surprise trend registered by the company in the previous two quarters. Despite this we remain optimistic about the company's future performance with normal production at the Bailey and Enlow expected to resume in the upcoming quarters. Besides, gradual recovery of gas prices owing to rise in demand in the following winter will drive up short-term top-line.

The company's high-profile capital investment goal of $1.5 billion in 2012 combined with its multiple growth accentuating projects like the new BMX mine will warrant enhanced profitability.

However, continued weakness in steel utilization rates in the overseas markets, hardened regulatory laws and price volatilities are persisting threats.  It presently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

Based in Canonsburg, Pennsylvania, CONSOL Energy produces coal and natural gas for energy and raw material markets.



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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



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