UPDATE: Dahlman Rose Downgrades Massey Energy Following Recent Earnings Release

Massey Energy's MEE 1Q11 adjusted EBITDA was $149MM versus consensus and 4Q10 figures of $185MM and $59MM, respectively. Weak sales volume and high cash operating costs had a significant negative impact during the quarter despite strong metallurgical price realizations. Full-year 2011 guidance had several unfavorable changes, described by management as partially being a result conservatism and the weak first-quarter results. Total sales volume is expected to be 41-44MM tons, down from 43-47 tons forecast in February. Costs are guided at $64-67/ton, up sharply from $59-62. According to management 1Q production was 1.2MM tons lower than plan due mainly to labor shortages and lower productivity. Of the 1.2MM tons, underground, surface and contract mining accounted for 700K, 400K and 100K of the shortfall, respectively. Lower tonnage resulted in a $3.30/ton sequential cost increase to $66/ton, with increased raw material costs and sales sensitive costs accounting for a portion of the jump as well. The MEE/ANR merger remains on track to close immediately following shareholder votes June 1. Dahlman continues to provide standalone estimates for MEE and is adjusting estimates following the quarterly results. Dahlman is downgrading Massey to a Hold from Buy as the stock is near its target valuation and it sees the deal close as highly probable and priced in. MEE closed Tuesday at $67.71