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CONSOL Energy Inc. (CNX - Analyst Report) reported earnings of 43 cents per share for the fourth quarter 2012, surpassing the Zacks Consensus Estimate of 22 cents. Earnings however were substantially lower than the year-ago figure of 71 cents.

GAAP earnings during the quarter were 65 cents compared with 85 cents in the year-ago period, which included a pre-tax gain of 26 cents and a 4 cent pre-tax charge.

Adjusted earnings per share of $1.48 for 2012 were way below the year-ago earnings of $2.76 per share but outpaced the Zacks Consensus Estimate of 89 cents.

Earnings underperformed due to the stalemate in the U.S. coal market in 2012 and weak natural gas prices in the fourth quarter 2012.

Total Revenue

CONSOL Energy’s quarterly revenue decreased 9.9% to $1.4 billion from $1.5 billion in the year-ago quarter. The year-over-year decline was due to diminishing coal volume sales compounded by a 5.1% reduction in the average sales price.

The top line easily beat of the Zacks Consensus Estimate of $1.3 billion.

CONSOL Energy’s 2012 revenue also dropped 11.2% to $5.4 billion from $6.1 billion in 2011. For 2012, the top line narrowly beat the Zacks Consensus Estimate of $5.3 billion.

Operational Update

Total costs during the quarter were down 8.7% year over year to $1,190.5 million from $1,304.5 million in the year-ago quarter. For 2012, costs decreased 7.4% to $4,933.03 million from $5,329.2 million in 2011.

A fall in costs of goods sold, gas royalty charges and purchased gas led to the overall shrink in expenses.

Operating income for the quarter declined markedly by 23.5% year over year. Similarly net income for 2012 fell 38.6% from 2011 levels. The decline in operating income was on account of greater plunge in revenue relative to the cost.

Financial Update

As of Dec 31, 2012, cash and cash equivalents were $21.8 million compared with $375.7 million as of Dec 31, 2011.

Total long-term debts at the end of 2012 stood at $3.17 billion, flat year over year.

Cash from operating activities at the end of 2012 was $0.72 billion versus $1.5 billion provided at the end of 2011.


For 2013, the company estimates net gas output in the range 170 to 180 billion cubic feet equivalent (Bcfe). First quarter 2013 gas volumes are expected to be in the range 39 Bcfe to 41 Bcfe. Projected coal sales volume for first quarter 2013 is 14 million tons while for 2013 the volumes are expected to be 56.3 million tons.

High-vol met coal volume is expected to be 1.1 million tons and 1.8 million tons in the first quarter 2013 and full year 2013, respectively. Low-vol met volume is expected to be 0.9 million tons in the first quarter 2013 and 3.9 million tons in 2013.

Thermal coal volumes are estimated to be 11.9 million tons in the first quarter and 50.1 million tons in 2013. Total hedged gas production is set at 17.0 Bcf for the first quarter 2013 at an average price of $4.66 per thousand cubic feet (Mcf). CONSOL Energy expects to export 5-10 million tons of coal in 2013.

Other Coal Company Releases

Peabody Energy Corporation (BTU - Analyst Report) reported an operating loss of $1.12 per share in the fourth quarter, coming significantly below the Zacks Consensus Estimate of earnings of 26 cents. Alliance Resource Partners, L.P. (ARLP - Snapshot Report) reported earnings of $1.87 per unit in the fourth quarter, surpassing the Zacks Consensus Estimate of $1.32 per unit for the quarter.

Our View

The rising demand for coal in the emerging markets of China and India will boost the prospects of metallurgical coal exports at CONSOL Energy. It is believed that domestic production in these countries is not sufficient to meet the growing demand for coal.

The company will also benefit from the promising prospects offered by the Brazilian markets particularly with the implementation of favorable monetary, fiscal and tax policies that brought about an upside in steel utilization rates. Moreover, normal winter weather and expected upswing in natural gas prices could act as potential near-term positive triggers.  

However, regulatory pressure and underground operational risk are negatives that could undermine the growth opportunities. Presently, the company carries a Zacks Rank #3 (Hold).

We currently have a Zacks Rank #2 (Buy) Natural Resource Partners L.P. (NRP - Analyst Report), which is scheduled to release its fourth quarter earnings on Feb 11.

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