Walter Energy Expects Flat 2Q

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Metallurgical coal producer Walter Energy, Inc. (WLT) announced its second quarter 2012 guidance. In this quarter, the company forecasts that financial performance will be flat due to lower pricing, partially offset by sequentially unchanged per ton cost of production and a few favorable non-operating gains. Separately, the company reiterated its full year 2012 metallurgical coal production estimate.

In the second quarter of 2012, Walter Energy expects metallurgical coal production to increase more than 10% year over year from 2.5 million metric tons (“MMTs”) to 2.8 MMTs. The company produced 2.4 MMTs of metallurgical coal in the first quarter of 2012. Including the impact of previously priced tons from past quarters, the company expects about $200 per MT for hard coking coal (“HCC”), down 12% quarter over quarter and $160 per MT for low-volatile (“vol”) pulverized coal injection (“PCI”), down 15% sequentially.

For full year 2012, Walter Energy reaffirmed its total metallurgical coal production range of 11.5 - 13 MMTs. Of this, it expects 75% to be HCC and 25% to be low-vol PCI.

The company expects total capital expenditure for 2012 to be $450 million. Total steel production in the top 10 producing countries is expected to increase 10% as compared to February 2012, resulting in higher demand for high quality metallurgical coal in the near term. In addition, the company expects global coal price to improve on the back of tightening of metallurgical coal supplies, reduction in steel inventories and improvements in global steel pricing.  

We view Walter Energy Inc. as a well-positioned organization with a strong project pipeline in the U.S., Canada, and U.K. The company has decided to shift coal production to more profitable mines in Alabama in the U.S. and Canada, which is expected to negate the impact of higher production cost.

Walter Energy’s acquisition of Western Coal on April 1, 2011 will enable it to strengthen its metallurgical coal portfolio related to addition of high quality metallurgical coal from mines in Northeast British Columbia in Canada and in West Virginia, U.S.; high quality anthracite coal in South Wales, UK and compliant thermal coal from mines located in West Virginia, U.S. Walter Energy is expected to produce an average of 20 MMTs per year by the end of this decade. Western Coal has access to high-growth steel-producing countries in Asia, South America and Europe. The company can comfortably leverage this opportunity to fortify its diverse geographical footprint.

As per the Zacks Consensus Estimates, Walter Energy’s second quarter and full year 2012 earnings are pegged at 87 cents and $4.41 per share, respectively.

Walter Energy, Inc. currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. The company competes with Arch Coal, Inc. (ACI).

Birmingham, Alabama-based Walter Energy, Inc. is one of the leading U.S. producers and exporters of premium metallurgical coal to the global steel industry.

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