Walter Energy 1Q Prelim Update

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Walter Energy Inc. (WLT) announced its first quarter preliminary 2013 operating results. The first quarter results look favorable when compared to the preceding quarter. Increased metallurgical (met) coal production and sales, healthy prices and cost decline led the company to post improved numbers.

Met coal sales volume surged 9% sequentially to 2.8 million metric tons in the first quarter 2013 owing to rising demand. Average realized metallurgical prices improved sequentially. Low volatile hard coking coal (“HCC”) was the major contributor to the sales growth.  However, lagged sale of about 700,000 metric tons at fourth quarter prices proved to be a partial drag on the prices.

Similarly, met coal production increased 12% to 2.8 million metric tons from the fourth quarter due to planned longwall moves in the Alabama operations.

The decelerating cost of met coal was another positive during the quarter. Cash cost of sales declined by over $10 per metric ton while production expenses dropped 5% in contrast to the fourth quarter. Higher low vol HCC and Pulverized Coal Injection (PCI) sales helped reduce costs.

As for thermal coal, sales decreased by a sharp 40% sequentially to 380,000 metric tons due to weak sales volume and escalating costs. Walter Energy recorded a $35 per metric ton increase in cash cost of sales in the first quarter from the North River facility. The company expects the closure of this mine to be concluded by 2013 end.

On the financial front, Walter Energy recently extended its notes offering to $450 million, 8.5% senior notes due 2021 from the previous $350 million to recuperate its $250 million of outstanding debt in its credit facility and for general corporate purposes. The company believes the gains accrued will impart greater flexibility to its financial position.

Walter Energy is expected to benefit from a rise in demand in the high-coal consuming countries of India, China and South America. Coal demand is also expected to strengthen in these developing nations on the back of a thriving steel market.

Nonetheless, the company will continue to suffer from the lackluster thermal market which triggered production cuts in several coal mines. Walter Energy currently carries a Zacks Rank #3 (Hold).

Other stocks performing better and are worth a look include Zacks Ranked #2 (Buy) Atmos Energy Corporation, (ATO), Vectren Corporation (VVC), and The Laclede Group, Inc. (LG).

Based in Birmingham, Ala., Walter Energy produces and exports metallurgical coal for the steel industry. It also produces thermal and industrial coal, anthracite, metallurgical coke, coal bed methane gas and other related products.

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