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Coal ETF in Focus on Sluggish Earnings

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Recently, two coal producers came up with muted fourth quarter 2013 earnings. One company Peabody (BTU - Free Report) – reported on January 30 – managed to beat the Zacks Consensus Estimate for earnings but couldn’t make it on the top line. Another producer, Consol Energy (CNX - Free Report) , reported a big-time miss on both lines the very next day.

Peabody 4Q4 Earnings in Detail

Coal producer Peabody Energy broke even in the fourth quarter getting the better of the Zacks Consensus Estimate of a loss of $0.05 and the year-ago loss of $1.12 per share. However, total revenue of $1.74 billion was down 13.6% year over year and fell shy of the Zacks Consensus Estimate of $1.77 billion. Despite higher volume, lower realized prices in Australia and the U.S. led to the miss. 

Poor sales numbers might have pushed Peabody into the red in the key trading session. To add to this, a muted guidance also weakened investor confidence.
The coal producer fell short of consensus estimate on the bottom line. Peabody predicted its bottom line in the range of a loss per share of $0.10 to earnings of $0.14 per share while analysts were expecting the same at a loss of $0.05 per share.
Consol’s Q4 Earnings in Details

Diversified fuel producer Consol Energy‘s adjusted earnings of $0.03 per share for the fourth quarter missed the Zacks Consensus Estimate of $0.07. Its revenues also fell 11.7% to $0.82 billion and lagged the Zacks Consensus Estimate of $1.15 billion by 28.6%.

The average sales price for low-volatile metallurgical coal tumbled 36.4% while the sales price for high-volatile metallurgical coal slumped 15.3%. However, lower realized prices were also noticed in the company’s gas division.

Market Impact
Though Peabody’s shares fell 2.88% soon after the earnings announcement, its shares gained some strength (up 0.95%) the following day. On the other hand, Consol energy also fell 1.45% in the key trading session but added 0.03% in after-hours trading.
Both the companies have decent exposure in Market Vectors Coal ETF (KOL) which nudged up 0.17% at the close of the week. Below, we have highlighted the fund in detail for those curious as to how the broad industry has been holding up (read: Coal ETF Investing 101).

KOL in Focus

Launched in January 2008, KOL tracks the Stowe Coal Index, providing exposure to the companies related to the coal industry. Even though this index has a global focus, nearly 45% of its investments are directed toward the U.S. companies, followed by China with a 13% share.

KOL has amassed an asset base of $136.6 million and charges 59 basis points in fees annually. This fund holds 34 stocks and the top 10 companies hold a 57.6% share of total net assets. The in-focus Console Energy and Peabody take up the first and fifth positions in the portfolio with about 8.79% and 6.52% of the total assets (see more in the Zacks ETF Center).

The fund is currently trading a little higher than its 52-week low which leaves room for rally if the broad trends take a positive turn. The fund’s Relative Strength Index is presently 39.27 indicating that KOL is in oversold territory and a good candidate for a rebound.
Bottom Line

The surge in natural gas ETFs might have dulled the demand for coal ETF in the recent past. Coal as a sector was under pressure over the last year thanks to lower natural gas prices, muted electricity demand growth, reduced export demand and the need to conform to the Environmental Protection Agency’s (EPA) Mercury and Air Toxics Standards (MATS) regulations. This led to the lower realized prices of the product for most of the producers (read: Is This the Year for the Coal ETF?).
However, things might take a turn this year on relatively higher oil and gas prices and subdued coal production in 2013. This, coupled with restructuring and cost containment efforts by the coal producing companies, will likely drive the coal ETF over the long haul.
However, with a current Zacks ETF Rank #4 (Sell), we are looking for further weakness out of this struggling sector, suggesting that investors might want to stay far away from this ETF for the time being.
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