Massey Falls Below Estimates - Analyst Blog

Coal miner Massey Energy Company (MEE) reported a third quarter adjusted loss of 33 cents per share (excluding Upper Big Branch mine tragedy related charges), falling 19 cents behind the Zacks Consensus Estimate of a loss of 14 cents. The decline in the quarter is primarily attributable to the disruption caused by the Upper Big Branch mine blast.

Operating Results

Net revenues in the reported quarter jumped 26.3% year over year to $810.2 million, mainly due to higher average prices realized on produced coal volumes. However, the company's revenue in the quarter came in below the Zacks Consensus Estimate of $840 million.

Produced tons sold in the quarter totaled 9.9 million compared with 8.7 million in the year-ago quarter. In the quarter, metallurgical and industrial coal shipments represented 18% and 9%, respectively, of total tons sold. Utility coal shipments accounted for 73% of total coal volumes sold in the quarter.

Average produced coal revenue per ton was $71.24 (an aggregate of $703.7 million) in the reported quarter, an increase of nearly 15% from $61.79 per ton (or $535.5 million) reported last year. The improvement was driven by realized price increases for thermal and metallurgical coal tons sold in the quarter.

The increase in thermal coal prices is attributable to the addition of higher priced contracts from the Cumberland acquisition, while metallurgical coal prices improved 30% as a result of stronger market demand and the expiration of lower priced contracts. The operations acquired from Cumberland shipped 1.9 million tons of coal during the quarter at an average price of $80.47 per ton.

Average cash cost per ton for the reported quarter was $62.50 (excluding Upper Big Branch mine tragedy related charges), increasing 25% from the year-ago quarter, mainly on account of lower productivity at the mines, attributed to discrete geological conditions, increased regulatory enforcement actions and related temporary shutdowns, increased labor turnover rates and higher surface mine ratios.

Liquidity

Massey Energy ended the quarter with $477.0 million in cash and equivalents compared with $665.8 million at year-end fiscal 2009. The company had $94 million available under its asset-based revolving credit facility for a total liquidity of $571 million as of September 30, 2010.

Debt and Capital Resources

Massey Energy had a total debt of $1.3 billion as of September 30, 2010, with a total debt-to-book capitalization ratio of 40.9%. Total capital expenditures in the quarter were $114.6 million.

Guidance

Massey Energy expects fiscal 2010 produced coal shipments at 38.5 million tons, with an average realized price of $70.50 per ton. Produced coal shipments for 2011 are forecasted in the range of 43 to 47 million tons with an average realized price range of $81.00 and $86.00 per ton. The company lowered its 2010 and 2011 guidance from 39.0 million tons and 43 to 47 million tons projected earlier.

Average cash cost per ton for 2010 and 2011 is expected to be roughly $60.00 and in the $59.00 - $62.00 range, respectively, excluding charges related to the Upper Big Branch mine tragedy. Other income is guided at $100 - $120 million for 2010 and $20 - $100 million for 2011.

Capital expenditure for 2010 is expected in the $400 - $420 million range and for 2011 in the $400 - $550 million range. DD&A is expected to be approximately $405 million for 2010 and $390 million for 2011.

For fiscal 2011, Massey has committed roughly 38.5 million tons of coal, including 32.2 million tons that are sold and priced at an average price of $74.00 per ton.  The sold and priced tons include 4.0 million tons of metallurgical coal.  Massey now expects met coal shipments for 2011 in the range of 10 to 14 million tons.

For fiscal 2012, Massey has commitments for coal shipments of 27.2 million tons. Of these, 18.7 million tons are sold and priced at roughly $73 per ton, including about 1.6 million tons of metallurgical coal.