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Coal producer Alpha Natural Resources (ANR - Snapshot Report) reported a loss of 56 cents per share for the second quarter of 2014, narrower than the Zacks Consensus Estimate of a loss of 74 cents.  Alpha Natural Resources had incurred a loss of 55 cents per share in the year-ago quarter.
 

GAAP loss in the reported quarter was $2.32 per share versus an 84 cent loss in the year-ago quarter. The difference between GAAP and operating loss was due to the impact of non-cash goodwill impairment charges of nearly $309 million.

Total Revenue

Alpha Natural Resources’ total revenues of $1,054.1 million in the second quarter surpassed the Zacks Consensus Estimate of $1,021 million by 3.2%. However, the top line declined from the year-ago figure of $1,335.1 million by 21%.

The year-over-year decline in total revenues was primarily due to lower average realizations and lower shipments of metallurgical and PRB steam coal.

Highlights of the Release

Coal tons sold in the second quarter decreased 7.9% to 19.9 million tons. The average realized price per ton also fell 11.3% year over year to $46.23.

However, cost of coal sales declined to $0.8 billion from $1.1 billion in the year-ago quarter due to effective cost savings.

Depreciation, depletion and amortization (DD&A) expenses decreased to $191 million during the second quarter of 2014 from $215 million in the year-ago period.

Guidance

Given the sluggish coal demand, Alpha Natural Resources made some downward adjustments to its shipment guidance for 2014.  The company now expects to ship between 75 and 85 million tons, including 15 to 18 million tons of Eastern metallurgical coal, 26 to 30 million tons of Eastern steam coal, and 34 to 37 million tons of Western steam coal out of the PRB.

Alpha Natural Resources cut the initial shipment guidance of 37 to 40 million tons of Western steam coal out of the PRB due to rail road congestion, as a result of which the total shipment forecast was lowered from the prior estimate of 78 to 88 million tons of coal.

SG&A expenses are expected to range from $110 million to $140 million for 2014. Interest expense is expected to be in the range of $270 million to $285 million, up from the prior estimate of $240 million to $255 million primarily due to new debts issued in May this year.

Capital expenditure for 2014 is expected in the range of $225 million to $275 million.

Other Company Release

Arch Coal’s (ACI - Analyst Report) second-quarter 2014 adjusted loss of 46 cents per share was narrower than the Zacks Consensus Estimate of a loss of 48 cents.

Peabody Energy Corporation (BTU - Analyst Report) reported a loss of 28 cents per share in the second quarter, in line with the Zacks Consensus Estimate.

CONSOL Energy Inc.’s (CNX - Analyst Report) earnings of 7 cents per share for the second quarter missed the Zacks Consensus Estimate of 25 cents by 72%.

Our View

If we go by the World Steel Association report, global steel usage is expected to increase 3.1% in 2014 from 2013 levels. This is expected to create fresh demand for met coal in the global markets.

However, we have seen no pickup in the met coal market with demand still remaining soft. The supply glut in the global metallurgical markets due to increased production from Australia and falling imports in China is putting downward pressure on prices.

The continuing railroad congestion is also impacting shipment from the PRB. Moreover, the U.S. Environmental Protection Agency’s Clean Power Plan proposal to lower pollution from coal-fired power plants will further undermine the prospects of thermal coal.

To accommodate the demand-supply imbalance, the company is planning to gradually idle production from its mines going forward.

Alpha Natural Resources currently holds a Zacks Rank #4 (Sell).

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