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Natural Resource Beats Q4 Earnings, Falls Y/Y

Zacks Equity Research

Natural Resource Partners L.P. (NRP) reported fourth-quarter 2013 earnings of 42 cents per unit, surpassing the Zacks Consensus Estimate by 31.3%. However, quarterly earnings decreased 25% from year-ago figure of 56 cents.

The partnership’s earnings of $1.54 per unit in 2013 beat the Zacks Consensus Estimate by 6.2%. Annual revenues decreased 22% compared to the year-ago figure primarily due to lower revenues, higher total operating expenses, an increase in units outstanding and higher interest expenses.

Total Revenues

In fourth-quarter 2013, Natural Resource Partners’ total revenues of $94.7 million surpassed the Zacks Consensus Estimate by 16.9%. Reported top line dropped 8% year over year, mainly owing to lower coal production volumes.

For 2013, the partnership posted total revenues of $358.1 million, beating the Zacks Consensus Estimate by 4.1%. However, annual revenues were 6% lower than the prior-year figure primarily due to a year-over-year decline of 18% in coal royalty revenues as a result of a drop in metallurgical (“met”) and steam coal prices, and a decline in coal production volumes. This was partially offset by a 23% year-over-year rise in revenues other than coal royalties.

Production Update

Coal production during the quarter dropped 35% from the year-ago quarter to 11,089 tons. Production decline in the Appalachia (down 41.6% year over year), Northern Powder River Basin (down 70% year over year) and Gulf Coast (down 75.1% year over year) was partially offset by production surge in the Illinois basin (up 4.6% year over year).

Operational Highlights

In the quarter under review, Natural Resource Partners’ total operating expenses were $28 million, down 4.2% from the prior-year quarter primarily due to lower depreciation expenses and transportation costs.

The partnership’s quarterly operating income decreased 8.8% year over year to $66.8 million.

Interest expenses climbed 50.3% year over year to $19.8 million due to higher long-term debt level.

Financial Screening

Natural Resource Partners’ cash and cash equivalents, as of Dec 31, 2013, were $92.5 million versus $149.4 million as of Dec 31, 2012. The decline in cash balance was due to the utilization of over $365 million for the acquisition of non-coal-related assets.

Long-term debt, as of Dec 31, 2013, was $1,084.2 million versus $897.0 million as of Dec 31, 2012.

For 2013, the partnership’s net cash provided by operating activities was $247.1 million versus $271.4 million in the year-ago comparable period.

Annual distributable cash flow increased 4% year over year to $309.4 million, primarily due to cash distributions received from OCI Wyoming.

Other Company Releases

Arch Coal Inc. (ACI) reported fourth-quarter 2013 pro forma loss of 45 cents per share, wider than the Zacks Consensus Estimate of a loss of 36 cents.

Alpha Natural Resources, Inc. (ANR) reported a loss of 52 cents per share for the fourth quarter of 2013, narrower than the Zacks Consensus Estimate of a loss of 61 cents.

CONSOL Energy Inc. (CNX) reported fourth-quarter 2013 earnings of 3 cents per share, lagging the Zacks Consensus Estimate of 8 cents.

Our View

Natural Resource Partners posted favorable results as both metrics beat expectations. The challenges of coal market continue to cast shadow on coal companies.

We appreciate the partnership’s steady effort towards diversification of its operations. In 2013, Natural Resource Partners invested in a trona and soda ash operation in OCI Wyoming. The partnership also engages in the oil and gas acquisitions. These initiatives will enable Natural Resource Partners to counter the struggling coal market dynamics and generate revenues from different streams.

However, we are concerned about volatile coal prices, over-dependence on a few customers for a major part of its royalty revenues and stringent government regulations, which may challenge the partnership’s future performance.

Natural Resource Partners currently has a Zacks Rank #5 (Strong Sell).

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