Diversified fuel producer CONSOL Energy Inc. (CNX) posted first quarter 2011 adjusted earnings of 84 cents per share, beating the Zacks Consensus Estimate of 78 cents. This outperformance was seen on the back of robust revenue growth at the company’s Coal Division.
Company-wide sales revenue grew 18.2% in the first quarter, boasting record revenues of $1.465 billion, driven by higher-than-expected coal sales coupled with favorable coal prices. CONSOL’s first quarter revenue also showed substantial margin from the Zacks Consensus Estimate of $1.419 billion.
Segmental Performance
Coal Division
First quarter revenue at the Coal Division summed to $1.186 billion, with about $1.130 billion coming from coal sales. The company’s total coal sales reached nearly 16.7 million tons in the first quarter.
In the quarter, CONSOL produced 1.5 million tons of low-volatile metallurgical coal, 1.1 million tons of high-volatility met coal, and 14.6 million tons of thermal coal, bringing the company’s overall coal production to 16.8 million tons. Of the thermal coal produced, nearly 13.5 million tons were from Northern Appalachia and 1.1 million tons from Central Appalachia.
For the quarter, average realized prices increased about $10 per ton while costs increased approximately $2 per ton compared to the prior year quarter. The average realized price per ton for low-volatile metallurgical coal increased 45% from last year, while high-volatile metallurgical coal prices were up only 2%. Realized per ton price for thermal coal also improved 7% in the quarter.
During the first quarter, thermal coal inventory increased by 0.6 million tons to 2.5 million tons.
Gas Division
The company’s Gas Division posted a revenue increase of 3.3% year over year, a total of $198.7 million. Total production at the Gas Division shot up 49.6% year over year to 35.9 billion cubic feet (Bcf) or 399 million cubic feet per day (MMcf/d) in the quarter. Average realized gas price was $4.93 per Mcf (down 32%), while total gas unit costs increased slightly primarily due to of the higher cost structure of the producing wells purchased in the Dominion acquisition.
Liquidity and Cash Flow
As of March 31, 2011, CONSOL’s total liquidity was $1.56 billion, with cash of $126 million, accounts receivable securitization facility of $200 million and $1.24 billion available under its credit facility. The company’s net cash flow from operations totaled $435.2 million in the first quarter. CONSOL’s total capital expenditure in the quarter was $254.8 billion.
Guidance
For 2011, CONSOL Energy retained its coal production guidance of 60-62 million tons and gas production guidance of 150-160 Bcf. The company raised its 2012 and 2013 coal production guidance by 0.5 million tons to 59.5-61.5 million tons for both periods, reflecting the restart of production at the Amonate Met Mine.
For the second quarter of 2011, CONSOL’s Coal Division plans to produce and sell at around 14.75 to 15.25 million tons, with low-volatile met sales of nearly 1.0 million tons, high-volatile met sales of nearly 1.4 million tons and thermal sales of about 12.9 million tons.
In the first quarter, CONSOL hedged about 13.0 Bcf of gas production at an average price of $5.56 per Mcf. Going forward, the company has hedged about 79 Bcf, 44.1 Bcf and 22.4 Bcf of its 2011, 2012 and 2013 gas production at $5.26 per Mcf, $5.64 per Mcf and $5.12 per Mcf, respectively.
Our View
CONSOL’s recent results reflected strong revenue growth at its Coal Division driven by continued growth of its coal export business. Driven by this growth and the recent international developments, CONSOL Energy is now in the process of expanding the capacity of its Baltimore Terminal by 2 million tons and upgrading the rail infrastructure.
Also, the company is restarting its Amonate Complex in Amonate, Virginia, where it hopes to ramp up production to 800,000 tons by 2015. We are enthused with the company’s initiative to further grow its coal division and expect this to boost the company’s top line and bottom line going forward.
CONSOL’s primary competitor Peabody Energy Corporation (BTU) started 2011 in full swing with the company’s earnings and revenues outperforming estimates in the first quarter. The company’s robust performance for the quarter was driven by higher global prices and demand for coal.
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. CONSOL presently has a Zacks # 3 Rank (short term Hold rating), which supports our long-term Neutral recommendation on the stock.
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