CONSOL Lags EPS, Issues Guidance - Analyst Blog


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Diversified fuel producer CONSOL Energy Inc. ( CNX ) reported earnings of 42 cents per share for the first quarter of 2012, falling short of the Zacks Consensus Estimate of 56 cents. Earnings were substantially lower than the year-ago figure of 84 cents per share.

Earnings during the quarter were hit by an increase in the cost per ton of coal production and lower realized unit gas prices.


CONSOL Energy's quarterly revenue decreased 2.6% to $1.43 billion from $1.47 billion in the year-ago quarter. The top line nominally surpassed the Zacks Consensus Estimate of $1.4 billion.

Operational Update

Total costs during the quarter were up 7.7% year over year to $1.3 billion from $1.2 billion in the year-ago quarter. The cost escalation was due to increase in cost of goods sold, and freight expenses. Rising costs were marginally tempered by a decline in selling, general and administrative expenses.

The combined impact of decrease in revenue and increase in total costs has affected the operating income of the company. The operating income during the quarter was $118.6 million, registering a substantial fall of 52.8% from the year-ago quarter.

Segment Performance

Coal Division

In the quarter, the company produced 15.7 million tons of coal, out of which 1.0 million tons were of low-volatile metallurgical coal, 1.0 million tons were of high-volatility and 13.7 million tons were thermal coal. Out of the total thermal coal production, 12.5 million tons came from Northern Appalachia while 1.2 million tons were from Central Appalachia. The company's thermal coal inventory increased by 400,000 tons from the previous quarter.

The average realized price for low-volatile metallurgical coal was $157.78 per ton, while realized prices for high-volatile metallurgical coal were $66.28 per ton. Realized prices for the company's thermal coal production improved 6.1% to $61.39 per ton in the quarter.

Total costs per ton, in the reported quarter, were $54.40, up 20% year over year.

Gas Division

During the reported quarter, the company registered year-over-year growth in gas production volumes. However, the average realized gas price decreased by 13.6% to $4.26 per Mcf from $4.93 per Mcf in the year-ago quarter.

Financial Update

As of March 31, 2012, cash and cash equivalents were $287.3 million compared with $375.8 million as of December 31, 2011.

Long-term debts as of March 31, 2011 were $3.17 billion, flat with the 2011 year-end level.

Cash from operating activities in the first quarter of 2012 was $229.5 million versus $435.2 million in the year-ago quarter. The year-over-year decline was due to lower net income and accounts payable, which was substantially higher this quarter.

Capital expenditure of the company during the quarter was $306.5 million versus $254.8 million in the year-earlier quarter.


CONSOL expects second quarter 2012 coal production to be in the range of 14.2-14.9 million tons and 2012 coal production to be in the range of 58.9 − 60.9 million tons. The company expects coal production, in 2013 and 2014, to be in the range of 59.4-61.4 million tons and 63.5-65.5 million tons, respectively.

CONSOL expects second quarter 2012 gas production to be in the range of 37-38 Bcf (billion cubic feet), and 2012 production to be in the band of 157 -159Bcf.

Peer Comparison

Peabody Corporation ( BTU ), competing with CONSOL Energy, reported first quarter 2012 numbers. Operating earnings per share of 67 cents were ahead of the Zacks Consensus Estimate while the top-line number of $2.04 billion lagged the corresponding market forecast.

The company expects earnings per share in the second quarter 2012 to be in the range of 40 cents to 65 cents.

Our View

CONSOL Energy's first-quarter 2012 performance lagged the prior-year numbers.  We believe that the company will face further challenges as the year progresses, as demand for coal is likely to fall in 2012 due to increased use of cheaper natural gas.

Based in Canonsburg, Pennsylvania, CONSOL Energy is a multi-fuel energy producer as well as energy services provider, primarily catering to the U.S. power generators. CONSOL Energy at presently retains a Zacks #5 Rank, which translates into a short-term Strong Sell rating.

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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 Nasdaq, Inc.

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