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Narrower-than-Expected Loss at Walter Energy

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Metallurgical coal producer Walter Energy Inc.’s operating loss per share of 55 cents per share in the fourth quarter of 2013 was narrower than the Zacks Consensus Estimate of a loss of 79 cents. In the year-ago quarter the company reported loss of 82 cents.

GAAP loss in the reported quarter was $2.79 per share compared to a loss of $1.12 in the year ago quarter. The difference between GAAP and operating loss in fourth quarter was due to impact of $2.24 per share resulting from restructuring and asset impairment charges.

Walter Energy’s operating loss per share of $3.37 per share in 2013 was narrower than the Zacks Consensus Estimate of a loss of $3.66. In 2012, the operating earnings of the company were 80 cents.


Walter Energy’s total revenue of $472 million in the fourth quarter was down 1.4% from $478.8 million in the year-ago period. The top-line results were 2.7% lower than the Zacks Consensus Estimate of $485 million.

Full-year 2013 revenues came in at $1.86 billion, missing year-ago revenues of $2.4 billion by 22.5%.  The total revenue was marginally lower than the Zacks Consensus Estimate by 0.3%.

The decline was primary due to lower met coal prices which ate into high coal sales volume.

Highlights of the Quarter

During the quarter, Walter Energy’s metallurgical coal production reached 3.2 million metric tons (MMTs), increasing 28.3% from the year-ago quarter. The total production, including the thermal coal, touched 3.6 MMTs in the reported quarter.

Total cash cost of met coal sales per metric ton (MT) during the quarter was $107.52, down 20.6% from the year-ago level.

Walter Energy continues to benefit from its cost-cutting measures. Selling, general and administrative expenses were $20.3 million, down 29.7% from $28.9 million in the year-earlier quarter.

Interest expenses were $64.5 million versus $49.7 million in the prior-year quarter. The increase in expenses was primarily due to the issue of new debts bearing higher interest rates.

Financial Update

Walter Energy continues to maintain a healthy cash balance. The available liquidity at the end of Dec 2013 was $587.3 million, consisting of cash and cash equivalents of $260.8 million plus $326.5 million of availability under the company’s revolving credit facility and net of outstanding letters of credit of $48.5 million.

Long-term debt as of Dec 31, 2013 was $2.77 billion versus $2.40 billion as of Dec 31, 2012.

Capital expenditures for the full-year 2013 totaled $153.9 million compared with $391.5 million for 2012. The year over year decline reflects Walter Energy’s capital discipline in the face of a worldwide decline in met coal demand.

Other Company Releases

Arch Coal Inc. reported fourth-quarter 2013 pro forma loss of 45 cents per share, wider than the Zacks Consensus Estimate of a loss of 36 cents.

Peabody Energy Corporation (BTU - Free Report) broke even in the fourth quarter versus the Zacks Consensus Estimate of a loss of 8 cents per share.

Alpha Natural Resources reported a loss of 52 cents per share for the fourth quarter of 2013, narrower than the Zacks Consensus Estimate of a loss of 61 cents.

Our View

Walter Energy’s loss in the reported quarter was narrower than expected. The softness in the sales price per ton limited the company from realizing the benefits of a higher sales volume.

Walter Energy has taken significant steps to cut down its operational costs. However, we believe the company is required to continue with these initiatives to yield benefits from it going forward.

As per a recent report of World Steel Association, demand from China, India, Russia and Middle-east will drive the global metallurgical coal market in 2014. In addition, the upcoming global events in Brazil and 2020 Olympics in Japan will also increase met coal demand. Though Walter Energy is competent enough, its ability to win contracts will be tested as other met coal operators will also look to grab the opportunity.

Walter Energy currently has a Zacks Rank #4 (Sell).

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