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 (WLTGQ) 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.
