Metallurgical coal producer
Walter Energy Inc
.'s (
WLT
) operating earnings per share in the second quarter of 2012 were
43 cents versus $1.83 reported in the year-ago quarter. Earnings
were higher than the Zacks Consensus Estimate of 39 cents.
Revenue
Walter Energy's total revenue of $678.0 million in the second
quarter was lower than $771 million reported in the year-ago
period.
Despite an expansion in coal sales volumes, the top line
declined over the prior year due primarily to lower realized prices
of all varieties of coal sold by the company.
However, the top line was higher than the Zacks Consensus
Estimate of $669 million.
Sales and Production
During the quarter, Walter Energy's metallurgical coal
production reached 2.91 million metric tons (MMTs), increasing by
17% from the year-ago quarter. The production consists of 75% met
coal and 25% pulverized coal injection (PCI) coal.
Sales volume during the reported quarter touched 2.84 MMTs
comprising 2.29 MMT of HCC and the balance PCI.
Operational Update
Second quarter operating profit at Walter Energy totaled $67.9
million, down sharply 59.9% from the same period last year, due to
operating losses incurred at its Canadian and UK operations and
increase in the cash cost per ton of coal.
Interest expenses were $31.1 million versus $32.1 million in the
prior-year quarter.
Financial Update
The company continues to maintain a healthy cash balance. Cash
and cash equivalents as of June 30, 2012 were $128.7 million versus
$128.4 million as of December 31, 2011.
Long-term debt decreased marginally from the year-end level.
Long-term debt as of June 30, 2012 was $2.20 billion versus $2.27
billion as of December 31, 2011.
In the second quarter, capital expenditure was $125.2 million
compared with $92.1 million in the year-ago quarter. The increase
was mainly due to higher spends on its global operations with the
major chunk being invested for the development of its Canadian and
UK operations.
Cash from operating activities during the first half of 2012 was
$308.6 million versus $279.4 million in the year-ago period.
Guidance
Walter Energy maintained its total coal production guidance for
2012 in the band of 11.5-13 MMTs. Out the total production 75% to
80% will constitute of the HCC variant and the balance will be the
low-vol PCI coal.
Keeping in mind the sluggish growth in the global economy, the
company has decided to lower its capital expenditure for 2012 by
$100 million to $400 million.
Peer Comparison
Arch Coal, Inc.
(
ACI
), which competes with Walter Energy, reported pro forma loss of 10
cents per share for the second quarter of 2012 versus earnings of
44 cents per share in the year-ago comparable period. The reported
loss was, however, narrower than the Zacks Consensus Estimate of a
loss of 18 cents per share.
Arch's total revenue of $1,063.5 million in the second quarter
2012 surpassed the Zacks Consensus Estimate of $1,020 million and
the year-ago revenue of $985.5 million.
Our view
Despite registering year-over-year growth in production and
sales volume during the reported quarter, the company remains
skeptical about engaging in capital expansion projects. This is
reflected in its cut capex guidance.
Losses incurred at the UK and Canadian operations continue to
hurt the company. Nevertheless, the gradual improvement expected in
global steel production will stand to benefit the company. China, a
major producer of steel, has recently approved steel projects worth
$23 billion. With this, the demand for seaborne metallurgical coal
would see a huge boost.
Birmingham, Alabama-based Walter Energy is one of the leading US
producers and exporters of premium met coal catering to the global
steel industry. Walter Energy currently retains a Zacks #3 Rank
which translates into a short-term Hold rating.
ARCH COAL INC (ACI): Free Stock Analysis Report
WALTER ENERGY (WLT): Free Stock Analysis Report
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