CONSOL Lags Q4 Earnings, Gives Guidance
Diversified fuel producer CONSOL Energy Inc. (CNX) reported pro forma earnings of 3 cents per share for the fourth quarter of 2013, widely missing the Zacks Consensus Estimate of 7 cents.
GAAP income at the company was $3.20 per share versus 65 cents per share in the prior-year quarter. The difference between GAAP and operating income in the reported quarter was due to adjustments relating to discontinued operations.
GAAP earnings per share of $2.87 for 2013 outpaced $1.70 reported in 2012.
Revenue
CONSOL Energy’s quarterly revenues decreased 11.7% to $0.82 billion from $0.93 billion in the year-ago quarter. The top line lagged the Zacks Consensus Estimate of $1.15 billion by 28.6%.
The year-over-year decline in revenue was primarily due to the lower realized prices of the products sold.
CONSOL Energy’s 2013 revenue decreased 10.3% to $3.29 billion from $3.68 billion in 2012. The top line also lagged the Zacks Consensus Estimate by 32.8%.
Segment Performance
Coal Division
In the quarter, the company produced 7.1 million tons of coal, of which 1.2 million tons were low-volatile metallurgical coal, 0.6 million tons were high-volatility and 5.3 million tons were thermal coal. Of the total thermal coal production, 4.8 million tons came from Northern Appalachia while 0.5 million tons were from Central Appalachia.
The average sales price for low-volatile metallurgical coal tumbled 36.4% to $81.84 per ton, while the sales price for high-volatile metallurgical coal was down 15.3% to $58.88 per ton. Sales price for the company's thermal coal was down 6.5% to $64.66 per ton in the quarter.
Gas Division
During the reported quarter, the company registered 16% year-over-year growth in gas production volumes to 48.5 billion cubic feet (Bcf). Gas production in the reported quarter was marginally higher than the expected level of 46–48 Bcf.
Despite an increase in gas output, profit levels declined in the wake of an 18 cent fall in the average selling price and a 14 cent increase in production cost per one thousand cubic feet (Mcf).
Financial Update
As of Dec 31, 2013, the company had a cash balance of $327.4 million versus $21.8 million as of Dec 31, 2012.
Long-term debts as of Dec 31, 2013, were $3.11 billion, marginally lower than $3.12 billion as of Dec 31, 2012.
Cash from operating activities in 2013 was $0.66 billion versus $$0.73 billion in the year-ago quarter.
Capital expenditure in 2013 was $ 1.49 billion, up 20.1% from $1.24 billion in 2012.
Guidance
CONSOL Energy expects first quarter 2014 coal sales in the range of 7.2–7.6 million tons and 2014 coal sales in the range of 30.1−32.1 million tons. CONSOL expects 2015 coal sales to reach 34 million tons.
CONSOL Energy projects first quarter 2014 gas production in the range of 47–49 Bcf and 2014 production in the band of 215–235 Bcf. 2014 gas production is expected to exceed the 2013 production level by 30%.
Total gas production hedged by the company for the first quarter is 31.9 Bcf, at an average price of $4.61 per Mcf.
Other Upcoming Releases
Arch Coal Inc. (ACI) is slated to release its fourth-quarter 2013 results on Feb 4. The Zacks Consensus Estimate is pegged at a loss of 36 cents.
Walter Energy, Inc. (WLT) is slated to release its fourth-quarter 2013 earnings on Feb 20. The Zacks Consensus Estimate is at a loss of 78 cents.
Our View
CONSOL Energy has shifted its focus to natural gas and has thus divested a few of its coal assets. The company is still looking to shed more coal assets, with the objective of generating best returns.
In Dec 2013, the company acquired gas drilling rights for 90,000 acres from Dominion Transmission, a unit of Dominion Resources (D). The acquired acreage adjacent to the company’s existing properties is in sync with its gas production expansion strategy.
CONSOL is set to increase natural gas production from the present level. We believe CONSOL’s presence in Southwest Pennsylvania, Northern West Virginia and Eastern Ohio will help it to achieve a 30% production increase annually in the 2014-2016 time frame.
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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