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Walter Slips to Loss as Price Falls

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Walter Energy Inc. reported fourth quarter 2012 pro forma loss per share of $1.06 compared with $1.28 per share earned in the year-ago quarter. Reported loss was wider than the Zacks Consensus Estimate of a loss of 84 cents per share.

The combination of weak coal sales and mild weather conditions led to uninspiring results in the fourth quarter.

GAAP loss in the quarter was $1.13 per share compared with earnings of $1.28 per share in the year-ago quarter. The difference between pro forma and GAAP figures was due to an 11 cent asset impairment and restructuring charge related to cutback in spending at the Aberpergwm mine located in the United Kingdom and a 4 cent charge associated with goodwill impairment.

Walter Energy’s 2012 pro forma loss was 49 cents per share compared with earnings of $5.99 per share in 2011. Reported loss was substantially lower than the Zacks Consensus Estimate of 73 cents.

In 2012, GAAP loss was $16.95 versus earnings of $5.99 per share in 2011. The difference between GAAP and adjusted figures was due to an 8 cent gain from discontinued operations and a $17.53 charge related to asset impairment, restructuring and goodwill impairment.


Walter Energy’s total revenue of $478.8 million in the fourth quarter decreased 31.9% from $703.0 million in the year-ago quarter. The quarterly revenue trailed the Zacks Consensus Estimate by 17.0%. This was due to a 39% fall in metallurgical (met) coal prices year over year as well as reduction in demand owing to rise in coal-to-gas switch.

In 2012, the company reported total revenue of $2,399.9 million, down 6.7% year over year from $2,571.4 million in 2011. The 2012 revenue was below the Zacks Consensus Estimate by 7.6%.

Operating Highlights

During the quarter, Walter Energy’s met coal sales volume expanded 4.2% year over year to 2.5 million metric tons (MMT) while full year met coal sales volume jumped 19% to 10.4 MMT. This was due to the company’s effective production management during the quarter under review.

Fourth quarter hard coking coal ("HCC") production was 2.0 MMT, up 11.1% from 1.8 MMT in fourth quarter 2011. Output from pulverized coal injection (PCI) stood at 476.0 thousand metric tons, declining 3% from the year-ago quarter.

In the fourth quarter of 2012, the average cash cost per ton of low and mid vol HCC was $74.0 and $102.0, while that of thermal coal and PCI was $64.17 and $125.0, respectively.

Total costs and expenses were $572.2 million, marginally up from $571.8 million in the year-ago quarter. This was primarily due to a 27.5% escalation in depreciation and depletion expenses partially offset by a 5.5% and 13.0% decline in cost of sales and general and administrative expenses.

Fourth quarter operating loss stood at $93.4 million compared with profit of $131.2 million in the year-ago quarter. The sharp decline in sales, not helped by flattish costs, led Walter to incur a loss this quarter.  

EBITDA for the quarter was $7.0 million, down 96.6% from the fourth quarter 2011.

Financial Update

As of Dec 31, 2012, Walter Energy had liquidity of $445.0 million, including $117.0 million in cash and cash equivalents, and $328.0 million under its credit facility. The company had a long-term debt of $2,397.4 million as of Dec 31, 2012 compared with $2,269.0 million as of Dec 31, 2011.

In 2012, the company reported nearly $392 million in capital expenditure, a decrease of $23.0 million from the prior-year quarter.


For 2012, Walter Energy’s targeted capital outlay is set at approximately $220.0 million.

Other Coal Company Releases

Natural Resource Partners L.P. (NRP - Free Report) reported adjusted earnings of 58 cents per unit in the fourth quarter, beating the Zacks Consensus Estimate by 34.9%. Alliance Resource Partners, L.P. (ARLP - Free Report) reported earnings of $1.87 per unit in the fourth quarter, outpacing the Zacks Consensus Estimate of $1.32 per unit for the quarter. SunCoke Energy Inc. (SXC - Free Report) posted fourth quarter earnings per share of 39 cents, surpassing the Zacks Consensus Estimate of 34 cents.

Our View

Walter Energy ended the quarter on a dismal note with flagging top- and bottom-line results. However, we expect the met coal business to swing back in the upcoming quarters with coal demand increasing from the emerging markets of India and China, which are experiencing supply shortages. Moreover, the company’s aggressive cost containment initiatives will further help maintain a stable margin.

However, the thermal market is expected to remain lukewarm and regulatory pressure from environmental bodies will likely present challenges to the company’s growth. Currently, Walter Energy retains a Zacks Rank #3 (Hold).

Based in Birmingham, Alabama, Walter Energy, Inc. produces and exports metallurgical coal for the steel industry.

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