Diversified fuel producer CONSOL Energy Inc. (CNX) reported pro forma earnings of 7 cents per share for the second quarter of 2014, lagging the Zacks Consensus Estimate of 25 cents by 72%. The company had registered a loss of 3 cents in the comparable year-ago quarter.
GAAP loss at the company was 11 cents per share versus a loss of 5 cents per share in the prior-year quarter.
Revenue
CONSOL Energy’s quarterly revenues increased nearly 13.2% to $937.4 million from $828.2 million in the year-ago quarter. The top line surpassed the Zacks Consensus Estimate of $922 million by nearly 1.7%.
The year-over-year increase in revenue was primarily due to thriving natural gas and natural gas liquid sales.
Segment Performance
Gas Division
During the reported quarter, the company registered 34% year-over-year growth in gas production volumes to 51.9 billion cubic feet equivalent (Bcfe). Gas production in the reported quarter was on the higher end of the expected range of 50–52 Bcfe.
Gas margin was $1.00 per one thousand cubic feet (Mcfe) compared with 69 cents in the year-ago quarter, reflecting a gain of 44.9%.
Coal Division
The company produced 8.3 million tons of coal, of which 1.0 million tons were low-volatile coal, 0.3 million tons were high-volatility and 7.0 million tons were thermal coal. The production was within the guidance range of 8.1–8.5 million tons.
The average sales price for low-volatile metallurgical coal tumbled 27.2% to $71.02 per ton, while the sales price for high-volatile coal was down 3.6% to $61.00 per ton. Sales price for the company's thermal coal was down 5.5% to $63.39 per ton in the quarter.
Financial Update
As of Jun 30, 2014, the company had a cash balance of $0.15 billion versus $0.32 billion as of Dec 31, 2013.
Long-term debts as of Jun 30, 2014, were $3.21 billion, marginally lower than $3.12 billion as of Dec 31, 2013.
Cash from operating activities in the first half of 2014 was $0.56 billion versus $$0.39 billion in the year-ago period.
Capital expenditure was $0.82 billion in the first half of 2014, up 15.8% from the year-ago period.
Guidance
CONSOL Energy expects third quarter 2014 coal sales in the range of 7.3–7.7 million tons and 2014 coal sales in the range of 31−33 million tons. CONSOL expects 2015 coal sales of 31−35 million tons.
CONSOL Energy projects third quarter 2014 gas production to be 60 Bcfe and fourth quarter production to be nearly 70 Bcfe. CONSOL Energy has recently raised its 2014 production guidance to the band of 225–235 Bcfe from 215–235 Bcfe. The company expects 2015 and 2016 gas production to grow by 30%.
For 2014, the company hedged 159.9 Bcf of total gas production at an average price of $4.58 per Mcf.
Other Coal Releases
Peabody Energy Corporation (BTU) reported a loss per share of 28 cents in the second quarter 2014, marginally wider than the Zacks Consensus Estimate of a loss of 27 cents.
Arch Coal Inc. (ACI) reported second-quarter 2014 adjusted loss of 46 cents per share, narrower than the Zacks Consensus Estimate of a loss of 48 cents.
Alliance Resource Partners LP (ARLP) reported second-quarter 2014 earnings of $1.37 per unit, surpassing the Zacks Consensus Estimate of 98 cents.
Our View
CONSOL Energy’s emphasis on natural gas assets has started to yield results. During the quarter the company invested $304.5 million. Thanks to these steady investments, the company expects to register a 30% hike in gas production over the next couple of years.
The company revised its thermal coal guidance upwards. The company expects demand for thermal coal to rise as producers replenish their depleted stockpiles. The utility operators had used their stockpiles to meet demand for more power during the frigid winter.
Recently, the company refinanced $1.5 billion debts and extended the maturity period to 2022 from 2017. CONSOL Energy was also able to lower the cost of debt, which will have a positive impact on margins.
CONSOL Energy presently holds a Zacks Rank #3 (Hold).
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