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Natural Resource Partners L.P. (NRP - Analyst Report) reported second quarter 2013 earnings of 37 cents per unit, down 19.6% year over year. Earnings also fell short of the Zacks Consensus Estimate by 9.8%. The lackluster performance stemmed from weak metallurgical (met) coal fundamentals and lower receipts from coal royalties.  

Total Revenue

Natural Resource Partners’ revenue declined 4% year over year to $86.8 million mainly due to a drop in coal royalty revenues. The decrease was partially offset by favorable returns from the partnership’s investment in OCI Wyoming.

The reported quarter revenue trailed the Zacks Consensus Estimate by 6.7%.

Coal royalty revenue slipped 7% to $58.2 million from the prior-year quarter. This happened due to lower realizations from met coal operations. Average coal royalty per ton also declined 26% year over year.

Revenues other than coal royalty surged 3% year over year to $28.6 million in the reported quarter.

Production Update

Coal production during the quarter rose sharply by 24% from the year-ago quarter to 14.9 million tons. Metallurgical coal contributed 28% to the overall production, lower than the year-ago share of 35%. This was primarily due to the met coal inventory glut.

Natural Resource Partners’ production in the Appalachian region grew 17% year over year. This was supported by substantial expansion in production across the Illinois, Northern River Powder and Gulf coast basins. Central Appalachia continued to drag down production levels while Northern and Southern Appalachia consistently provided upsides.

Operational Highlights

Total operating expenses were $31.5 million, up 16% from the prior-year quarter. A 14.8% and 26.3% respective increase in depreciation, depletion and amortization as well as general and administrative expenses led to the cost upswing.

Interest expenses climbed to $14.4 million from $13.6 million in the year-ago quarter.

Financial Screening

Cash from operating activities during the quarter was $79.7 million versus $82.5 million in the prior-year quarter.

In the second quarter, distributable cash flow was $90.7 million, up 8% 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 Jun 30, 2013, were $105.2 million versus $149.4 million as of Dec 31, 2012. The substantial decrease in Natural Resource Partners' cash balance from the year-ago quarter was due to acquisitions, and principal and interest payments.

Long-term debt as of Jun 30, 2013, was $1.1 billion versus $0.9 billion as of Dec 31, 2012.

Guidance

Natural Resources Partners lowered its 2013 earnings guidance to the range $1.40 to $1.60 per unit from the prior $1.60 to $1.80 per unit. The partnership trimmed its revenue guidance to the range of $330 million to $360 million from the previous $330-$375 million. The conservative outlook reflects rising depreciation, depletion and amortization owing to mining locations.

The distributable cash flow guidance has been moved up by $40 million to the range of $290 million to $320 million for 2013 chiefly due to the partnership’s share in OCI Wyoming. The partnership’s lessees are still waiting for encouraging signs from the coal market, which would drive royalty payments but until then Natural Resources Partners is taking a cautious stance on its full year earnings.

Other Coal Company Releases

Alpha Natural Resources Inc. (ANR - Snapshot Report) reported a loss of 59 cents per share for the second quarter of 2013, narrower than the Zacks Consensus Estimate of a loss of 60 cents.

Walter Energy Inc. (WLT - Analyst Report) posted an operating loss per share in the second quarter of 2013 of 55 cents, much narrower than the Zacks Consensus Estimate of a loss of 64 cents.

Arch Coal Inc. (ACI - Analyst Report) reported second-quarter 2013 pro forma loss of 29 cents per share, narrower than the Zacks Consensus Estimate of a loss of 32 cents.

Our View

Natural Resource Partners delivered dull earnings and revenue results in the second quarter 2013 lagging our expectations. The partnership’s profitability will be affected by the tepid met coal market, which is expected to persist in the upcoming quarter before gaining traction by 2013 end. Unless the partnership comes up with effective cost abatement measures, it is likely to face margin pressure thus hampering returns. The partnership currently retains a Zacks Rank #4 (Sell).
 

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