Massey Energy in Real Mess - Analyst Blog

As Massey Energy Company (MEE) struggles to recover from the deadly mine incident that occurred in April 2010, the company's sales and earnings have been decelerating putting the forecast to shame. After posting disappointing results for the past three quarters, the company signaled that its sales volumes for the fourth quarter and fiscal 2010 have settled below the projected guidance. The company also expects to post an operating loss yet again in this year-end quarter.

Massey Energy said that the produced volumes sold in the fourth quarter totaled 8.9 million tons. This brings the full year 2010 coal shipments to 37.1 million tons, which shows a decline of nearly 1.4 million tons from the October 2010 estimate of 38.5 million tons. The company attributed this shortfall to lower-than-anticipated production, inconsistent rail service and delays in export shipments at the ports during the fourth quarter. 

Massey's total coal production in the fourth quarter fell short of expectations by roughly 0.8 million tons, with fewer production shifts in deep mines accounting for nearly 50% of the shortfall. Production shifts in these mines were down by about 8% in the quarter versus prior expectations.  Rest of downside in production resulted from lower than expected productivity from deep mines and highwall miners and higher ratios at surface mines.

Massey expects this sales drift along with additional charges related to the former CEO's retirement and impairments related to idled or closed mines would result in an operating loss again this quarter.

Despite having great mines and the best of miners, Massey's operations continue to face challenges in various ways since the blast at one of its mines, which killed nearly 29 miners. The company's results have been weak in the past three quarters due to the difficult mining conditions and stringent regulations. However, Massey's management remains committed to improving the company's performance in 2011.

Massey Energy and its board of directors continue the process of reviewing the company's strategic alternatives. Massey is scheduled to announce its fourth quarter and full year 2010 results on February 1, 2011, after the market closes.

Richmond, Virginia-based Massey Energy is the fourth largest coal producing company in the U.S., and the largest in Central Appalachia based on revenue earned from coal sales. The company, together with its subsidiaries, engages in the production, processing, and sale of bituminous coal of steam and metallurgical grades through its processing and shipping centers called Resource Groups. The company primarily competes with Arch Coal Inc. (ACI) and CONSOL Energy Inc. (CNX).

Despite poor results and ongoing turmoil, Massey Energy currently holds a Zacks #3 Rank (short term Hold). We also retain our long term ‘Neutral' rating on the stock.

 
ARCH COAL INC (ACI): Free Stock Analysis Report
 
CONSOL ENERGY (CNX): Free Stock Analysis Report
 
MASSEY EGY CPY (MEE): Free Stock Analysis Report
 
Zacks Investment Research