CONSOL Lags Earnings, Beats Sales

Diversified fuel producer CONSOL Energy Inc. (CNX) reported a loss of 24 cents per share for the third quarter of 2013, widely missing the Zacks Consensus Estimate of earnings of 3 cents.

GAAP loss at the company was 28 cents versus 5 cents in the prior-year quarter. The difference between GAAP and operating loss in the reported quarter was due to a one-time adjustment of 4 cents.

Revenue

CONSOL Energy’s quarterly revenue increased 6.1% to $1.23 billion from $1.16 billion in the year-ago quarter.

The top line surpassed the Zacks Consensus Estimate of $1.21 billion.

Segment Performance

Coal Division

In the quarter, the company produced 14.5 million tons of coal, of which 1.1 million tons were low-volatile metallurgical coal, 0.5 million tons were high-volatility and 12.9 million tons were thermal coal. Out of the total thermal coal production, 12.4 million tons came from Northern Appalachia while 0.5 million tons were from Central Appalachia.

The company saw a rise in coal inventory. CONSOL Energy’s total coal inventory in the third quarter increased 25.6% sequentially to 971,000 tons. However, low-volatile coal inventory decreased sequentially by 40,000 tons to 104,000 tons.

The average sales price for low-volatile metallurgical coal tumbled 36.8% to $85.77 per ton, while the sales price for high-volatile metallurgical coal was down 10.8% to $60.42 per ton. Sale price for the company's thermal coal was down 4.9% to $59.08 per ton in the quarter.

Gas Division

During the reported quarter, the company registered 16.7% year-over-year growth in gas production volumes to 46.1 billion cubic feet (Bcf).

The average selling price of one thousand cubic feet (Mcf) inched up by a cent year over year. The company’s cost-control measures helped expand the margin by 16 cents per Mcf year over year.

Financial Update

As of Sep 30, 2013, the company had a cash balance of $17.2 million while total liquidity was $1.413 billion.

Long-term debts as of Sep 31, 2013, were $3.12 billion, flat with the year-end 2012 level.

Cash from operating activities in the third quarter of 2013 was $0.195 billion versus $$0.162 billion in the year-ago quarter.

Capital expenditure of $ 0.43 billion during the quarter was flat year over year.

Guidance

CONSOL Energy expects fourth quarter 2013 coal sales in the range of 13.6–14.0 million tons and 2013 coal sales in the range of 57−57.4 million tons. The company forecasts coal sales for 2014 and 2015 to reach 30.1 million tons and 33.8 million tons respectively. The sharp decline in coal sales expected in the forthcoming quarter is due to CONSOL Energy’s decision to hive a significant portion of its coal assets.

CONSOL Energy projects fourth quarter 2013 gas production in the range of 46–48 Bcf and 2013 production in the band of 170–172 Bcf. 2014 gas production is expected to improve to the range of 2010–225 Bcf. 2015 gas production is expected to exceed the 2014 production level by 25% to 30%.

Total gas production hedged by the company for the fourth quarter is 24.0 Bcf, at an average price of $4.64 per Mcf.

Other Company Releases

Peabody Energy Corp. (BTU) reported third quarter 2013 earnings of 5 cents per share, widely beating the Zacks Consensus Estimate of a loss of 3 cents.

SunCoke Energy, Inc. (SXC) released its third quarter results with earnings per share of 9 cents beating the Zacks Consensus Estimate of 7 cents by 28.6%.

Arch Coal, Inc. (ACI) reported third quarter 2013 loss of 1 cent per share, much narrower than the Zacks Consensus Estimate of a loss of 30 cents

Our View

CONSOL Energy has shifted its focus more towards natural gas and has thus started to shed its coal assets. At the beginning of this year, the company hived some of its coal assets in Canada and very recently decided to shed more coal assets for a total value of $3.5 billion.

The guidance provided by the company also indicates a definite bias towards natural gas. With increasing government regulation on coal generation units, the decision to focus more on natural gas assets seems appropriate.

Despite the downsizing of coal assets, CONSOL Energy still retains a few low-cost, high-quality coal mines. The company is likely to utilize these assets on any rebound in coal demand either in the U.S. or in international markets.

CONSOL Energy presently retains a Zacks Rank #3 (Hold).

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