Alpha Natural Resources' Q3 net income more than doubles year-over-year to US$66.4M on Massey Energy acquisition, higher prices for coal; revenue more than doubled to US$2.3B
November 3, 2011
– Coal producer Alpha Natural Resources Inc. said Thursday its profit more than doubled in the third quarter, as it benefited from its acquisition of rival Massey Energy Co. and higher prices for coal used to make steel.
The results topped Wall Street expectations, and shares rose 12 percent in morning trading.
The Abingdon, Va., company reported net income of $66.4 million, or 29 cents per share, up from $31.9 million, or 27 cents per share, a year ago.
Excluding merger-related expenses and other special charges, adjusted income from continuing operations was $79.9 million or 35 cents per share.
Revenue more than doubled to $2.3 billion, helped by the addition of Massey for the full quarter and higher prices for metallurgical coal used to make steel. During the quarter Alpha said shipments from legacy Massey operations contributed nearly 35 percent of its total coal revenue.
Analysts expected earnings of 9 cents per share on revenue of $2.06 billion, according to FactSet.
Shares rose $2.76, or 11.6 percent, to $26.71 in morning trading.
The company said coal prices rose about 51 percent to an average $64.08 per ton in the quarter. It took advantage of those increases by boosting coal sales 47 percent to more than 31 million tons.
Alpha's $7.1 billion takeover of Richmond, Va.-based Massey in June made it the world's third-largest producer of metallurgical coal, a key fuel for manufacturing steel. It also supplies thermal coal to electric utilities and manufacturing industries. Alpha has 5 billion tons of coal reserves and more than 180 mines and processing plants in Kentucky, Pennsylvania, Virginia, West Virginia and Wyoming.
The company said total costs and expenses grew to $2.2 billion from $952 million a year ago due to the inclusion of Massey operations. It spent more than $1 billion in the quarter on merger-related expenses and $10.6 million on charges related to the deadly April 2010 explosion at Massey's Upper Big Branch mine in West Virginia that killed 29 miners.
Alpha said global demand for met coal remains "robust," driven primarily by growth in Asia. Meanwhile, it said demand for thermal coal is "muted" in the U.S. as power plants burn more natural gas and slow economic growth.
"Despite predictions in the financial markets that the sky was falling in August and September ... we've not seen any real change in worldwide demand for either met coal or thermal coal," CEO Kevin Crutchfield said in a conference call with investors.
It estimates it will ship a total of 102.5 million to 109 million tons of coal in 2011 and a total of 118.5 million to 131 million tons in 2012. In September Alpha lowered its estimate for 2011 from a range of 104 million to 112 million tons blaming an unexpected drop in demand from Asia and production shortfalls at some U.S. mines.
Alpha said it is "essentially sold out" in 2011 with nearly 100 percent of its coal shipments committed and priced.
The company said it spent $179 million in the quarter to buy back about 6.7 million shares as part of two share repurchase plans totaling $725 million.
Alpha was quick to absorb Massey, with the goal of running a combined company and turning around Massey's troubled safety record, which has been the focus of renewed scrutiny since the Upper Big Branch mine explosion. The blast wreaked havoc on Massey's business, and it reported four consecutive quarterly losses before Alpha bought it. Massey also had turnover rates that topped 20 percent at times along with a checkered environmental record.
The benefits of Alpha's efforts to right the problems at legacy Massey operations are already noticeable. Incident rates have declined more than 13 percent at legacy Massey operations compared with 2010, employee feedback is positive and turnover rates declined to single digits in September, Crutchfield said.
"We've only scratched the surface at this point," Crutchfield said. "We still have a great deal of work to do."
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