Diversified fuel producer CONSOL Energy Inc. (CNX) reported third quarter earnings of 73 cents per share, above the Zacks Consensus Estimate of 67 cents. Earnings per share in the quarter also rose significantly from the year-ago quarter earnings of 33 cents.
Company-wide revenue grew 12.8% in the third quarter, boasting record revenues of $1.522 billion, driven by higher-than-expected coal sales coupled with favorable coal prices. Third quarter revenue also improved substantially from the Zacks Consensus Estimate of $1.410 billion.
Segmental Performance
Coal Division
Third quarter revenue from the Coal Division reached $1.2 billion with majority of the revenue coming from the sale of company-produced coal. Total company produced coal sales in the quarter reached nearly 14.9 million tons compared to 15.6 million tons in third quarter 2010.
In the quarter, CONSOL produced 1.4 million tons of low-volatility metallurgical coal, 1.0 million tons of high-volatility met coal, and 12.3 million tons of thermal coal, bringing the company’s overall coal production to 14.7 million tons. Of the thermal coal produced, nearly 11.1 million tons were from Northern Appalachia and 1.2 million tons from Central Appalachia.
During the quarter, the company benefitted from the much higher average realized prices for its low-vol coal sales. Realized prices for the low-vol coal rose 26% from last year to $208.51 per ton. The company also received higher prices for sales of high-vol and thermal coal. Realized prices for high-vol and thermal coal were up 17.7% and 12%, respectively.
Total costs per ton, across all of CONSOL Energy's coal production in the quarter, was $55.33, up 11% from $50.03 in the corresponding 2010 quarter. Costs in the quarter were impacted by a roof fall at McElroy Mine, and higher-than-expected production costs in Central Appalachia.
During the third quarter, thermal coal inventory remained stable at 1.6 million tons compared to the June 2011 quarter.
Gas Division
The company’s Gas Division posted a revenue increase of 10.6% year over year, a total of $203.6 million. Results gained mainly from robust gas production and lesser costs, offset partially by poor gas prices.
Total production at the Gas Division shot up 12.8% year over year to 40.4 billion cubic feet (Bcf) or 439.6 million cubic feet per day (MMcf/d) in the quarter. Average realized gas price was $4.92 per Mcf (down 14%), while total gas unit costs improved 3.7% to $3.93 per Mcf.
Liquidity and Cash Flow
As of September 30, 2011, total company liquidity was $2.8 billion, comprising liquidity of $1.5 billion and $1.3 billion at CONSOL Energy and CNX Gas, respectively.
At quarter-end, CONSOL Energy had cash of $63.8 million, accounts receivable securitization facility of $200 million and $1.23 billion available under its credit facility. CNX Gas’ liquidity comprised $408.7 million of cash and $929.8 million available under its bank facility.
Overall, CONSOL Energy’s net cash flow from operations totaled $456.9 million for the third quarter. CONSOL’s total capital expenditure for the quarter was $412 billion.
Guidance
For 2011, CONSOL Energy estimates coal production to come in the range of 62-62.6 million tons and gas production to be in the 150-152 Bcf range. The company’s 2012 and 2013 coal production expectations stand in the ranges of 59.5-61.5 million tons and 60.5-62.5 million tons, respectively.
For the fourth quarter of 2011, CONSOL’s Coal Division plans to produce and sell around 14.7 to 15.3 million tons, with low-volatile met sales of nearly 1.0-1.2 million tons, high-volatile met sales of nearly 1.5 million tons and thermal sales of about 12.4 million tons.
Our View
CONSOL’s recent results reflected strong revenue growth at its Coal Division driven by continued growth of its coal export business. Going forward, the company estimates exporting nearly 10.0-10.5 million tons of coal in 2011. In the Gas Division, the company continued to witness success in the Marcellus Shale at the 10-well Hutchinson pad in Westmoreland County, Pennsylvania, which is now flowing at a combined rate of 56 MMcf/d.
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. The company competes primarily with Peabody Energy Corp. (BTU) and Arch Coal Inc. (ACI).
CONSOL presently has a Zacks #3 Rank (short term Hold rating). We maintain our long-term Neutral recommendation on the stock.
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