CONSOL Shy of Estimates - Analyst Blog

Diversified fuel producer CONSOL Energy Inc. (CNX) posted fourth quarter 2010 adjusted earnings of 54 cents per share, falling short of the Zacks Consensus Estimate of 56 cents. For the full-year 2010, the company reported earnings of $1.60, way below the Zacks Consensus Estimate of $2.27.

Lower earnings in the quarter reflect increased expenses due to additional acquisition-related charges, offset in part by robust fuel volumes produced by both the segments.

CONSOL Energy boasted a revenue growth of 9.6%, which propelled revenues to $1.357 billion, driven by record revenue contribution from the Coal Division. Compared to the Zacks Consensus Estimate CONSOL's revenue fell 2.7% (negative surprise) from $1.394 billion.

Total revenue for the whole of 2010 was $5.2 billion, up 13% from $4.6 billion in 2009. However, the company's yearly revenue was shy of the Zacks Consensus Estimate of $5.3 billion.

Segmental Performance

Coal Division

Fourth quarter revenue at the Coal Division improved 10% to $1.067 billion from the year-ago quarter. 

In the quarter, CONSOL produced 1.2 million tons of low-volatile metallurgical coal, 0.5 million tons of high-volatility met coal, and 15.1 million tons of thermal coal, a total of 16.8 million tons. Of the thermal coal production, 13.7 million tons were from Northern Appalachia, 1.2 million tons from Central Appalachia, and 0.2 million tons from Western Bituminous. Produced coal sold in the quarter was 17.0 million tons.

The average realized price for low-volatile metallurgical coal was $164.62 per ton (up 52%), while realized prices for high-volatile metallurgical coal were $72.69 per ton. Realized prices for the company's thermal coal production declined 2.2% to $52.98 per ton in the quarter.

Gas Division

The company's Gas Division posted a revenue increase of 10.5% year over year, a total of $196.5 million. Total production at the Gas Division shot up 44.2% year over year to 36.2 billion cubic feet (Bcf) or 394 million cubic feet per day (MMcf/d) in the quarter.

Average realized gas price, including hedged production of 11.9 Bcf, was $4.84 per Mcf. For all of 2010, the company produced a record of 127.9 Bcf, achieving its goal for 2010.

Liquidity and Cash Flow

As of December 31, 2010, CONSOL's total liquidity was $1.09 billion, with cash of $16.2 million and $1.08 billion available under its credit facility. The company's annual cash flow from operations totaled $1.131 billion.

In 2010, CONSOL's total capital expenditure was $1.154 billion, with $421 million invested in the Gas Division, $708 million in the Coal Division, and $25 million for other activities.

Guidance

For the first quarter of 2011, CONSOL's Coal Division plans to produce and sell at around 15.5 to 16.0 million tons. Going forward, Coal production is expected to be in the 59 – 61 million tons range for 2011, 2012 and 2013.

CONSOL Energy estimates total low-vol production to be roughly 4.25 - 4.5 million tons in 2011. The company said it has about 2.2 million tons of low-vol coal for 2011 priced at $160.70 per ton. This includes about 1.4 million tons priced at $166.44 per ton for the first quarter of 2011.

On the thermal coal side, CONSOL Energy has about 52.6 million tons of thermal coal priced at $57.68 per ton for 2011, including 13.6 million tons priced at $57.31 per ton in the first quarter of 2011.

At the Gas Division, CONSOL Energy has set its gas production goal between 150-160 Bcf for 2011, which reflects a 17%-25% growth from 2010 levels.

CONSOL said it has hedged about 13.1 Bcf of its gas production for the first quarter of 2011 at an average price of $5.53 per Mcf.

CONSOL Energy expects to invest $1.4 billion in various projects during 2011, with $675 million slated for the Gas Division and $615 million for the Coal Division. The company expects its 2011 capital spending to be within the cash flows generated during the period, including cash from potential asset sales.

Our View

CONSOL's recent results reflect strong revenue growth at the Coal and Gas Divisions. However, the company's performance was short of expectations due to increased costs.

CONSOL's primary competitor Peabody Energy Corporation's (BTU) recent results nearly doubled the year-ago comparisons and also smoothly outperformed the Zacks Consensus Estimates, on the back of strong revenue growth across various regions. The company also benefited from favorable coal prices during the fourth quarter.

Based in Canonsburg, Pennsylvania, CONSOL Energy is a multi-fuel energy producer as well as energy services provider, primarily catering to the U.S. power producers.

 
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