The only good thing I saw in the release was that the slowdown in sales caused receivables to drop by $ 20 MM. Since the company has less money tied up in receivables, it was able to pay down $ 20 MM of debt. And it kind of sounds like the hoped-for recovery is being pushed back into even later in the year and into the next fiscal year.
I, on the other hand, am expecting a pretty bad Q, although I would love to be wrong.
On the last conference call, all the good things they talked about were going to happen in the second half (buying them some time). Also, in connection with the write-offs, they spoke of a continuing slow-down in several key markets. Neither comment bodes well for Q1.
And the company seems to have a problem keeping financial news confidential until it's released. We saw that in the month before the Q4 numbers were released, and I think the last 2 or 3 days' tanking is also the result of someone trading on guesses or knowledge they shouldn't have. So I'm expecting a pretty bad Q.
But VOXX's margins are low enough that any unusual item (a lawsuit won or lost, etc.) can move the quarter's bottom line. I'm saying that I think operating income will be bad. My only question is how bad?
I'm never good at counting the days. Anyway, MRD's quiet period ended today, and it looks like 7 investment firms came out with buy recommendations and the stock is up pre-market. FELP priced 3 days after MRD, so I would think its quiet period ends over the weekend.
Coal? Will any of the firms that took FELP public support it with buy recommendations? We'll see.
The 2013 earnings were about 70% due to the reversal of the company's deferred tax liability, when it converted from a taxable corporation to a non-taxable partnership. That caused ENBL to reverse a $ 1.2 billiob deferred tax liability. The company's operating income in 2013 was up about 10% from 2012.
Actually, the modest proposal was meant as satire. Jonathan's Swift's original modest proposal, written during a time of hunger and poverty in Ireland, was to suggest that poor people should sell their children as food for rich people. His idea was to shame the wealthier people into doing something about poverty. It didn't work, by the way. Swift got famous, but the poor people didn't get anything. So I wasn't really serious.
But the more I think of it, I think maximizing the distribution would benefit ARLP as well. All investors care about these days is yield, and to a lesser extent, growth in that yield. So if ARLP were to maximize the yield, even at the cost of hurting/destroying the balance sheet, I think the higher distribution would result in a higher price. Take a look at FELP, which went public a few weeks ago with $ 1.4 billion in debt and zero capital, post the IPO. It's also in coal, and people ignore the ugly balance sheet and just focus on the DCF and promised distribution growth.
And I think ARLP (and FELP, for that matter) will be fine for the next few years with the focus on Illinois Basin thermal coal. NRP had 2 problems, 1 of which will eventually solve itself. First, it spent a lot of money, probably over $ 1 billion at this point, on coal reserves in Central App, which is not the place to be for thermal coal. That problem can't be fixed. CAPP thermal coal will essentially be gone within 5 years. And NRP made a big bet on met coal reserves (partly overlaps with the CAPP issue), which should eventually work out, but right now is in the tank. So, because its basic business had these problems, it had to diversify, but it waited way too long. ARLP doesn't have the same urgency, so I'd rather get a higher distribution and use the money to buy oil & gas MLPs on my own.
My calculations of AHGP’s IDRs show that AHGP should be able to grow its distribution almost exactly 26% faster than ARLP for the next year or 2. So if ARLP raises its distribution by 10%, AHGP’s distribution should grow by 12.6%; if ARLP raises its distribution by 50%, AHGP’s distribution increases 63%, and so forth. While this sounds good for an investor in AHGP, it’s actually much slower growth than most other GP’s that are in the 50/50 splits. Unless ARLP issues more units (which is extremely unlikely), the 26% distribution outperformance is it for the near future. Eventually, as the distribution grows, the relative outperformance by AHGP will shrink.
The reason for the slowing growth at AHGP is that it actually runs ARLP to the benefit of ARLP, not simply for its own benefit. Most GPs follow the KMI/KMP model – maximize current distributions (with the GP getting 50% IDRs), which forces the MLP to regularly issue new units to finance growth. These new units already carry 50% IDRs, so the GPs benefit both from the growth in the business and the growth in common units outstanding.
AHGP/ARLP has done the opposite. It is the only MLP I know of that regularly distributes less than earnings, DCF or EBITDA or whatever measure of profitability you might choose. So AHGP is not benefitting from the IDR payments it could receive if it forced ARLP to distribute a higher portion of DCF/EBITDA/whatever. Because this accumulation of income at ARLP helps it to finance growth internally, there is less need to issue new units. In fact, ARLP has not issued any significant amount of new units in years (maybe never), so there is no growth in the IDRs on that score. From 2007 until currently, ARLP has increased common units outstanding by only 1%.
So here’s my modest proposal, with apologies to Jonathan Swift: as the GP, AHGP should force ARLP to start distributing 100% of its DCF. In fact, maybe ARLP should make a 1-time current distribution of all the accumulated earnings it has invested in the business over the past few years. Then ARLP should follow that with an equity raise to replenish capital. And finally, ARLP should start buying/building new mines (in the Illinois Basin, of course) and finance that growth 50-50 debt and equity, but especially equity. Then, having established a good track record of maximizing the IDRs, AHGP should sell itself to ETE, WMB or maybe KMI.
FELP has been trying to go public for more than 2 years. Its original S-1 was filed with the SEC is early 2012, but the attempted IPO was abandoned because of market conditions - that is, everyone hated coal. Things may look bad right now, but the sentiment has shifted in a pretty big way. ARLP/AHGP have been doing fine, RNO is up nicely recently on news of its new Illinois Basin mine starting operations, and NRP has done pretty well also, largely on the heels of FELP's success. (FELP is NRP's biggest lessee.)
And FELP was able to go public while leaving almost zero capital in the partnership post-IPO. Something like $ 1.4 billion of debt and close to zero equity and the IPO was fully subscribed.
I don't see that. Both IEP and CVI show IEP's ownership at 82% at 3/31/14, same as at 12/31/13. Where do you see the 3% increase?
Feel free not to be annoyed by the following comments. I was annoyed.
Keep in mind that this presentation was a sales pitch, so I shouldn't be surprised when Mr. Hogan stresses the positives, even if they are pretty weak. But he talked 2 times and had 2 slides showing that NRP's EBITDA margins were 89% (that's EBITDA divided by revenues). My comment - the only reason the margins are that high is because GAAP accounting doesn't let NRP book its share of OCI Wyoming's revenues. So NRP simply books its share of OCI Wyoming's net profit and EBITDA in revenue and EBITDA. That may sound confusing, but what ti means is that NRP shows a 100% EBITDA margin on its share of OCI Wyoming's operations. If NRP were to adjust its revenues to reflect its share of OCI Wyoming's revenue, the EBITDA margin would by a little below 60%. Which is still great, which is why I get annoyed when they report the 89% and don't mention how it got that high.
And lastly, he made a big point about APP steam coal constituting 54% of NRP's revenues in 2005 versus 16% today. He said the reduction was the result of NRP's diversification strategy. And that's true. But the slide also showed that the APP steam coal revenues in 2005 were $ 86 MM, compared to $ 51 MM today. So the drop in % of revenue from APP steam coal was the result of 2 factors, and he chose to mention only 1.
But it's a sales presentation, so these are really small nits. The bigger point is that NRP isn't going under any time soon; it will be around long enough for the next recovery in met coal, whenever that happens.
This week's presentation contained no real news, just a few interesting things and some annoying ones.
Mr. Hogan said to expect new oil & gas investments sooner rather than later, but nothing specific.
The last question that Mr Hogan was asked was inaudible, but from his response, the question had to do with met coal's prospects. Earlier, Mr. Hogan had said that met coal was a long-term turnaround, implying no improvement this year. But he had said that NRP's met coal reserves were higher quality, low vol met coal that miners would be reluctant to stop mining. Anyway, in response to the question, he said that NRP had not heard of any planned closings from its met coal lessees yet (as of June 24, the date of the presentation). So either CLF's announcement later in the week about the possible closing of Pinnacle came as a surprise, or else CLF's warning was just a protective announcement. In either event, Mr. Hogan did not give any hope for an improvement in met coal mining this year - he thinks there is overproduction of met coal to the tune of 18 - 20 MM tons, currently.
He indicated that the 3 mines that Foresight leases from NRP have a capacity of 18.2 MM tons per year, and in 2013 FELP only mined 12.4 MM tons from those mines, so NRP is hopeful for more production.
He indicated that if we have a hot summer (in the areas where coal-fired power plants use coal from NRP's mines), thermal coal pricing could improve. If that is followed by another cold winter, things could get pretty good. That's too many "ifs" in my book, but maybe the temperature volatility that is supposedly caused by global warming may help, which would be ironic.
I was surprised/disappointed at his long-term projections about distributions from OCI Wyoming. After 2014, they are looking for $ 41 MM per year. If that's correct, I think investors in OCIR (like me) \will be disappointed.
1 post to go for the annoying comments.
If you saw my holdings in BBBY, you wouldn't think I was always correct. But thanks for the comment.
As to Pinnacle, the law requires 60-day advance warning of any closure that affect more than a fixed number of employees (maybe 50?). So companies give the warning whenever there's a chance of a shutdown/idling, etc. So maybe they won't close it. But the sign isn't good.
The mine (that is, the mining equipment and related transport assets, etc.) is owned by CLF. NRP owns the reserves that CLF is/was mining.
From page 9 of NRP's 2013 10-K, in discussing its CAPP properties: "Pinnacle. The Pinnacle property is located in Wyoming and McDowell Counties, West Virginia. In 2013, 1.1 million tons of metallurgical coal were produced from our reserves on this property. We also own an overriding royalty interest on coal produced from the reserves that we do not own at this property, from which we derive additional revenues. We lease the property to a subsidiary of Cliffs Natural Resources, Inc. Production comes from a longwall mine and is transported by beltline to a preparation plant. The metallurgical coal is then shipped via railroad and barge to both domestic and export customers."
So yes, I think part of the Pinnacle mine uses reserves owned by NRP.
NRP also discloses (in its Southern App disclosure) the Alabama reserves that are leased to CLF.
CLF announced today that it will idle its Pinnacle mine, located in Welch, WV. That's an NRP property. The company issued a 60-day WARN act warning today, saying the workers might be out of work for at least 6 months starting August 25.
The confusing part - CLF says it produced 2.8 MM tons of met coal at the mine in 2013. NRP's 10-K shows that it collected royalties on 1.1 MM tons of met coal from the mine during 2013. So I'm guessing the mine's reserves are owned by several owners, 1 of which is NRP.
Using NRP's average 2013 met coal royalty rate of $ 5,11/ton, that would be a reduction in royalties of $ 5.6 MM at some point. I have no idea how long NRP's lease lasts, and whether CLF is required to make any minimum royalty payments, so unless either company gets more specific in its disclosure, we can't know the impact until next year's 10-K is issued.
The Pinnacle mine is part of a larger complex, and CLF previously closed other mines in the complex. I think this mine is the last one in the complex that is still operating.
CLF also leases met coal reserves from NRP in Alabama. CLF will continue operations there, at least for the prsent.
How about the effect of EPD's announcement that it is going forward with a new pipeline from the Bakken to Cushing? A very long term issue, if in fact it's ever successful, but traders today sell/buy first and think later.
Not sure what you mean by "more shares". CVRR sold 6.5 MM units and used the proceeds to redeem an equivalent number of units currently held by CVI. Apparently the offering was upsized because the first release talked about 6 MM units being sold. Throw in the overallotment and maybe you're up to 7.5 MM units, although there's no guarantee the CVRR price will recover enough to trigger the overallotment being exercised.
So no effect on CVRR, you're right. And CVI gets somewhere around $ 170 MM in cash, net of some tax liability.
WLT and CLF are met coal (CLF more iron ore), both steel-related. An analyst came out today and said steel wasn't as bad as everyone thought. He didn't say things were good, mind you, just that they weren't as bad as they might be. So selected steel-related stocks did OK today. SXCP, an MLP that converts met coal into coke for several steel makers, also was up nicely today. So maybe NRP is doing better on both coal sides.
Sorry, I'm working tomorrow.
Today, NRP was up 2%, ARLP was up 2%, AHGP was up 3%, and even RNO was up. OXF, which is in a class by itself, was up too. Only FELP among the coal-related MLPs broke the trend.
I don't think there is any specific reason. Historically, AHGP has risen faster than ARLP (because of the IDRs, I think). In the past 2 years, they have performed more in line with each other, and over the past year ARLP has actually outperformed, which makes little sense. So maybe AHGP is just getting back to even (compared to ARLP). Or it might just be a daily trading aberration. Or maybe someone thinks that AHGP is finally going to do something to make people recognize its value.
Until Friday, I would have agreed with you. Now I'm not sure. From Mr. Ayscuew's post of Friday, June 20: "Would add, poly, that if your comments in favor are strong enough to get jran to buy shares I will immediately cover all of my short positions become the strongest supporter of NRP on the planet." Maybe a joke? I always thought he was either long or on the sidelines.