Why Walter Energy's Shares Fell Flat

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of metallurgical coal producer Walter Energy (NYSE: WLT  ) dropped as much as 19% today after updating guidance and lowering its dividend.

So what: Management said that production was up 7% from the first quarter but sales fell 0.3 metric tons to 2.4 metric tons, and inventory piled up, leading to higher costs. But what really hit investors was a decrease in the quarterly dividend from 12.5 cents to $0.01 because of debt amendments.  

Now what: Demand and prices for metallurgical coal are down and Walter needed to amend its credit facility to secure more debt and stay afloat. That's what forced the dividend reduction; it's better to keep the cash and stay alive than pay a dividend all the way into bankruptcy. Walter lost $49.4 million last quarter, and the rise in costs and drop in revenue doesn't bode well for this quarter or for the stock over the long term. I'd consider dumping this stock and getting what I could at this point.

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Read/Post Comments (3) | Recommend This Article (6)

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  • Report this Comment On July 24, 2013, at 4:27 PM, slash32is4 wrote:

    be greedy when others are fearful

  • Report this Comment On July 24, 2013, at 4:57 PM, cptnfancypants wrote:

    Great Call, Travis.

    Where were you at $140?

    Where were you at $130?

    $120? $110? $100? $90? $80? $70? $60? $50?

    $40? $30? $20?

  • Report this Comment On July 26, 2013, at 8:47 AM, rsinj wrote:

    cptnfancypants, why should it make any difference whatsoever when the author made his call? In the end, how good the call is will be judged on where the stock is at some point in the future - no? Maybe the author was unaware of WLT when it traded at those higher prices? Maybe the situation has changed since the shares were at those higher prices? Maybe in the current situation, there is better visibility of what's to come?

    If anything, any price movement from the current share price is much more important as it is a significantly higher percentage than when the shares were at your higher prices. If the stock falls $2 today that's 20%, if the stock fell $2 when the shares were at $140 nobody would care.

    I think the author simply provided a high level summary and what his personal inclination is - I see nothing wrong with that. That's what makes a market. Some will be right, some will be wrong, over a long enough period both can be right or wrong.

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