Disappointing Q3 Earnings at Natural Resource - Analyst Blog

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Natural Resource Partners L.P. ( NRP ) reported third quarter 2013 earnings of 32 cents per unit, down 33.3% year over year. Earnings also fell short of the Zacks Consensus Estimate by 13.5%.

The lackluster performance reflects persistent weakness in metallurgical (met) and steam coal markets and lower receipts from coal royalties.

Total Revenue

Natural Resource Partners' revenue declined 13% year over year to $82.2 million mainly due to a 26% drop in coal royalty revenues. The decrease was partially offset by favorable returns from the partnership's investment in OCI Wyoming as well as increase in oil and gas revenues.

The reported quarter revenue also trailed the Zacks Consensus Estimate by 9.7%.

Coal royalty revenue slipped to $52.3 million from $70.3 million in the prior-year quarter. This happened due to sluggish met and steam coal market prices. Average coal royalty per ton also dwindled 26% year over year.

Revenues other than coal royalty surged 25% year over year to $29.9 million in the reported quarter.

Production Update

Coal production during the quarter saw a minuscule increase of 1% from the year-ago quarter to 13,476 tons. Production upsurge in the Illinois basin was partially offset by lower production in Appalachia and Northern Powder River Basin.

Natural Resource Partners' coal royalty production in the Appalachian region slipped 7.8% year over year to 8,816 tons. Central and Southern Appalachia dragged down production levels while Northern Appalachia operations provided a consistent upside.

Operational Highlights

Total operating expenses were $30.6 million, up 7.3% from the prior-year quarter. A 23.3% increase in depreciation, depletion and amortization due to production in high-cost properties led to escalating costs.

Interest expenses climbed to $15.5 million from $13.7 million in the year-ago quarter.

Financial Screening

In the third quarter, distributable cash flow was $104.6 million, up 34% from the year-ago period on account of increased cash distributions from Natural Resource Partners' interest in OCI Wyoming.

Cash and cash equivalents as of Sep 30, 2013, were $99.7 million versus $149.4 million as of Dec 31, 2012. The sharp decline in the cash balance was due to $330 million utilized for acquisitions, and principal and interest payments.

Long-term debt as of Sep 30, 2013, was $1,088.9 million versus $897.0 million as of Dec 31, 2012.

Guidance

Natural Resource Partners retained its 2013 earnings guidance in the range $1.40 to $1.60 per unit. The partnership expects the steam coal market to remain soft in the fourth quarter as well.

Natural Resource believes the met coal market will turn around eventually and its met coal operation will stand to gain from the bullish global steel market trends expected in the upcoming year.

Other Releases

Alpha Natural Resources Inc. ( ANR ) reported a loss of 61 cents per share for the third quarter of 2013, narrower than the Zacks Consensus Estimate of a loss of 76 cents.

Walter Energy Inc. ( WLT ) reported an operating loss of $1.68 per share in the third quarter of 2013, wider than the Zacks Consensus Estimate of a loss of $1.01.

Arch Coal Inc. ( ACI ) reported third-quarter 2013 loss of 1 cent per share, much narrower than the Zacks Consensus Estimate of a loss of 30 cents.

Our View

Natural Resource Partners posted disappointing top- and bottom-line results as both metrics failed to meet our expectations. The coal market challenges continue to cast its shadow on coal players like Natural Resource.

However, the partnership's business diversification efforts will continue to help counter the struggling coal market dynamics. Natural Resource will benefit from the steady rise in demand for met coal given the World Steel Association's projection of a 3.2% increase in steel utilization worldwide in 2014.

The partnership currently retains a Zacks Rank #3 (Hold).



ARCH COAL INC (ACI): Free Stock Analysis Report

ALPHA NATRL RES (ANR): Free Stock Analysis Report

NATURAL RSRC LP (NRP): Free Stock Analysis Report

WALTER ENERGY (WLT): Free Stock Analysis Report

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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.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: ACI , ANR , NRP , WLT

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