Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Is the Bottom in for Alpha Natural Resources Inc?

When holding on to underperforming stocks, investors often wonder, "is this the bottom?". Given the continual decline of coal stocks over the past several years, there has been a veritable cottage industry of bottom-callers for coal stocks. Article after article ponders whether the latest event marks the bottom for the sector. And time after time, the bottom-callers have been wrong. Coal stocks continue to trend lower as the U.S. coal industry suffers from oversupply and high production costs. 

But even in the worst climate, there is the occasional good news that makes one wonder whether an event truly marks the bottom, and in Alpha Natural Resources' (NASDAQOTH: ANRZQ  ) case, it seems that the good news came this quarter.

First quarter earnings 
If one removes the effect of a one-time sale, Alpha Natural Resources' earnings were on the surface not very impressive.

Revenue for the quarter came in at $1.1 billion, down 16.5% year over year, mainly due to lower realized prices for thermal and metallurgical coal. 

Adjusted earnings came in at $0.07 per share, beating consensus analyst estimates by $0.65 and adjusted EBITDA came in at $289 million, increasing from $117 million for this time last year. 

Adjusted earnings and adjusted EBITDA were higher mainly because the company booked a $250 million gain with the exchange of its Alpha Shale joint venture with Rice Energy. That one-time gain is not sustainable.

The good news from earnings is that Alpha Natural Resources' efforts at containing costs have been relatively successful  - total expense for the quarter was only $1.3 billion versus $1.5 billion this time last year. 

Expenses were lower in part due to the company's lower cost of production. The company's adjusted cost of coal sales in the East, for example, decreased to $65.73/ton in the first quarter from $69.33/ton last year. By containing costs, the company should be in better position to weather any further downturn. 

Potential bottom in metallurgical prices
Another piece of good news for all metallurgical miners -- including Walter Industries (NASDAQOTH: WLTGQ  )  -- is that Alpha Natural Resources believes that metallurgical coal prices have bottomed and may rally beginning in 2015. 

The company believes that metallurgical coal prices have bottomed because there has been a substantial round of supply cuts in Canada, the U.S., and Australia. Since the beginning of 2014, coal miners have made commitments to take a cumulative total of more than 10 million tons of metallurgical coal production offline. 

Alpha Natural Resources itself, for example, expects to ship only 15 to 18 million tons of metallurgical coal this year versus the 16 to 20 million tons that the company previously guided for. 

With metallurgical prices weak, there could be more cuts in the near future. Once those supply cuts are made, supply and demand may reach equilibrium at a higher price level.

The bottom line
Even with the positive earnings report and forecast that metallurgical coal prices have bottomed, it is uncertain whether the bottom is in for Alpha Natural Resources. With the Chinese economy weak and Europe recovering from a recession, conditions in the coal industry remain difficult.

The best that coal miners can do is play good defense by containing costs and cutting capital expenditures. Alpha Natural Resources certainly did that this quarter. The good news is that if the company is right about metallurgical coal prices bottoming, it may not have to wait long for the eventual rebound, whenever that might be.

OPEC is absolutely terrified of this game-changer
Imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we're calling OPEC's Worst Nightmare. Just click HERE to uncover the name of this industry-leading stock... and join Buffett in his quest for a veritable LANDSLIDE of profits!


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2941462, ~/Articles/ArticleHandler.aspx, 8/28/2015 4:11:04 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Jay Yao

Jay is an energy and materials writer. He reports on oil and gas fundamentals and macro trends in the industry.

Today's Market

updated 6 hours ago Sponsored by:
DOW 16,654.77 369.26 2.27%
S&P 500 1,987.66 47.15 2.43%
NASD 4,812.71 115.17 2.45%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/27/2015 3:59 PM
ANRZQ $0.04 Up +0.00 +7.69%
Alpha Natural Reso… CAPS Rating: **
WLTGQ $0.08 Down -0.01 -7.06%
Walter Industries,… CAPS Rating: **