Walter Exceeds Estimates

Walter Energy Inc. (WLT - Analyst Report) posted third quarter earnings of 45 cents per share, substantially higher than the Zacks Consensus Estimate of 27 cents per share and second quarter earnings of 21 cents per share. The better-than-expected results were driven by strong customer demand resulting in record coking coal sales volumes. 

However, earnings were lower compared to $1.26 per share posted a year ago. Net sales and revenues for the quarter declined 10% to $278.3 million compared to a year ago, and operating income totaled $42.4 million, down $67.2 million from a year ago. Both net sales and revenues and operating income were negatively impacted by lower coke sales as well as lower realized prices for coking coal compared to last year's all-time highs. 

However, sales and revenues increased sequentially on improved coking coal sales volumes. Coking coal sales volumes increased 35.7% to 1.9 million tons in the quarter. Total coking coal production in the quarter was 1.5 million tons versus 1.2 million tons in the prior-year period. 

Natural gas sales totaled 1.5 billion cubic feet of gas, lower than the prior year, at an average price of $3.29 per thousand cubic feet in the current quarter. Steam and industrial coal sales were 302,000 tons during the quarter. Production increased to 359,000 tons in the third quarter of 2009 versus 221,000 tons a year ago, primarily from the inclusion of a full quarter of Taft’s production. 

Walter Coke sold 38,478 tons of metallurgical coke in the current quarter at an average price of $361.95 per ton. The company’s liquidity at quarter-end was strong at $322.9 million, with cash of $87.8 million and $235.1 million of credit facility. Net debt outstanding was $95.0 million at quarter-end. Capital expenditures were $14.9 million in the quarter. 

In the guidance update for the fourth quarter, Walter expects coking coal production to be between 1.4 and 1.5 million tons, with production costs expected to average between $65 and $70 per ton. Coking coke sales is expected to range between 1.6-1.7 million tons. Steam & industrial coal sales are expected to be 300,000-330,000 tons and coke sales to be 78,000-86,000 tons. 

The company expects to ship 126,000 tons of hard coking coal at 2008-2009 carryover pricing of approximately $315 per metric ton in the fourth quarter. The company expects capital expenditures to total about $85 million for full-year 2009. 

Walter recently finalized its long-range mining plan and expects to produce approximately 8.0 million tons of premium hard coking coal in 2010, driven by incremental production from the company's Mine No. 7 East expansion. The company also expects to increase coking coal production capacity to 8.5 - 9.0 million tons in 2011 and 9.0 - 9.5 million tons in 2012.

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