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Walter Energy Loss Widens, Misses Ests

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Metallurgical coal producer Walter Energy Inc.’s operating loss per share of $1.50 per share in the first quarter of 2014 was wider than the Zacks Consensus Estimate of a loss of $1.10. In the year-ago quarter the company reported a loss of 64 cents.


Walter Energy’s total revenue of $413.9 million in the first quarter was down 15.8% from $491.4 million in the year-ago period.

The decline was primarily due to lower met coal prices and decline in coal sales volume.

The top-line results were lower than the Zacks Consensus Estimate of $454 million by 8.8%.

Highlights of the Quarter

During the quarter, Walter Energy’s metallurgical coal production reached 2.6 million metric tons (MMTs), decreasing 0.2% from the year-ago quarter. The output consisted of 88.5% met coal and 11.5% pulverized coal injection (PCI) coal.

Total cash cost of met coal sales per metric ton (MT) during the quarter was $107.89, down 9.7% from the year-ago level.

However, the selling price of hard coking coal ("HCC") declined 17.4% year over year to $127.43 per MT and the selling price of low-vol PCI  declined 15.8% to $117.26 per MT.

Selling, general and administrative expenses were $20.8 million, down 32.6% from $30.7 million in the year-earlier quarter.

Interest expenses were $79.4 million versus $52.6 million in the prior-year quarter. The increase in expenses was primarily due to the issue of new debts.

Financial Update

The company continues to maintain a healthy cash balance. The available liquidity at the end of the quarter was $676.0 million, consisting of cash and cash equivalents of $405 million plus $271 million of availability under the company’s revolving credit facility.

Long-term debt as of Mar 31, 2014 totaled $2.92 billion, higher than $2.77 billion in 2013 end.

In the first quarter, capital expenditure was $12.3 million, a 63.8% decline from the year-ago quarter. The decline in capital expenditure reflects Walter Energy’s capital discipline in the face of a worldwide decline in met coal demand.

Walter Energy is on track to make capital expenditure of $130 million in 2014.


Walter Energy expects to produce between 9.0 and 10.0 MMTs in 2014, which takes into account the loss in production from the idled mines in Canada. The company expects its met coal sales volume to range within 10.5 and $11.5 million MMTs.

Other Company Releases

Arch Coal Inc.’s first-quarter 2014 adjusted loss of 60 cents per share was much wider than the Zacks Consensus Estimate of a loss of 42 cents.

Peabody Energy Corporation (BTU - Free Report) reported a loss per share of 19 cents in the first quarter 2014, lagging the break-even Zacks Consensus Estimate by a wide margin.

SunCoke Energy, Inc. (SXC - Free Report) incurred a first quarter loss of 11 cents per share, much wider than the Zacks Consensus Estimate of a loss of 1 cent per share.

Our View

The performance of Walter Energy in the reported quarter was lower than expected. The softness in the sales price per ton as well as lower sales volume adversely impacted revenues and earnings.

Walter has taken steps to cut down its operational costs, in Apr 14, the company decided to idle production at its mines in Canada to overcome the present slackness in demand.

World Steel Association report suggests global steel usage to improve by 3.1% in 2014 from 2013 level. Walter Energy has high quality met coal reserves to benefit from revival in met coal demand. However, the current supply glut in the coal markets is resulting in demand-supply imbalance and is slowing down the recovery process.

Walter Energy currently holds a Zacks Rank #3 (Hold).

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