Walter Energy Snips Guidance - Analyst Blog

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Metallurgical (met) coal producer Walter Energy Inc. ( WLT ) provided its met coal production expectation for 2012. The company expects production for 2012 to be in the range of 11.5 million to 13 million metric tons versus its prior expectation of 13 million to 14 million metric tons of met coal.

The current 2012 production expectation is lower than the previous guidance as the company takes into consideration the inherent risk associated with the mining business besides lower-than-expected contribution from its different start-up projects.

However, the 2012 production expectation is set higher than 8.7 million metric tons forecast for 2011. The 2012 production estimate represents a year-over-year increase in the range of 32% to 49%. The expected growth in production is attributed to the rise in global met coal demand in the steel industry and contribution from major projects coming online in 2012.

Fiscal 2011 and Q4 Outlook

The company expects fourth quarter production and sales of met coal to be 2.4 million metric tons and FY11 production to be 8.7 million metric tons. The estimated fourth quarter production is 0.4 million metric ton lower than the previous expectation while the sales forecast is down by 0.13 million metric ton.

The cut in the fourth quarter guidance reflects lower sales from the Alabama mines partially offset by solid sales from Canadian production hubs.  The production shortfall was due to lower production from the Alabama mines due to equipment and ventilation related problems.

The coal industry on the whole is thriving on increasing demand from the steel and power generation industries. Walter Energy, a key player in the U.S. market, stands to gain from this demand surge. Although natural calamities in 2011 have impeded the company's progress, we believe the company is back on the path of recovery. Notwithstanding the trimmed 2012 guidance, the projected year-over-year improvement is a testimony to growing optimism in the sector.

Walter Energy currently retains a Zacks #5 Rank, which translates into a short-term Strong Sell rating. The company competes with Arch Coal Inc. ( ACI ) which has a Zacks #4 Rank, translating into a short-term Sell rating.

Tampa, Florida-based Walter Energy is one of the leading U.S. producers and exporters of premium met coal to the global steel industry.


 
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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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