Please ensure Javascript is enabled for purposes of website accessibility

Geological Issues Caused Alliance Resource Partners, L.P.'s Results to Fall Short

By Matthew DiLallo – Oct 30, 2017 at 11:45AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The coal MLP still expects to meet its full-year guidance.

Coal-producing master limited partnership (MLP) Alliance Resource Partners (ARLP 2.20%) encountered "adverse geological conditions" at its Hamilton mine during the third quarter, which caused results to come in below expectations. However, the company partially made up for that issue by selling coal out of its inventory and the mine is now back up to its planned production levels. Because of that, Alliance still expects to meet its full-year guidance.

Alliance Resource Partners results: The raw numbers

Metric

Q3 2017

Q3 2016

Year-Over-Year Change

Revenue

$453.2 million

$552.1 million

-17.9%

Tons sold

9.6 million

10.8 million

-10.3%

Coal sales price per ton

$45.12

$49.63

-9.1%

Distributable cash flow

$95.1 million

$150.8 million

-36.9%

Data source: Alliance Resource Partners.

A bucket wheel excavator for digging into coal.

Image source: Getty Images.

What happened with Alliance Resource Partners this quarter?

Alliance Resource Partners battled geological conditions and a tough comparable quarter.

  • Coal revenue declined due to lower coal sales prices and volumes versus the year-ago period. That said, results appear worse than they were because the company enjoyed a spike in coal sales and revenue in the year-ago quarter after it unloaded a significant portion of its inventory stockpile into an improving coal market. Overall, coal sales volumes and revenue were in line with the company's expectations heading into the third quarter.
  • However, production volumes fell short because of the issue at the Hamilton mine, which the company partially made up for by selling 1.1 million tons of coal from its inventory. As a result, the company missed its expectations for earnings and distributable cash flow. 
  • That said, Alliance Resource Partners continued to generate significant distributable cash flow and covered its payout to investors by more than 1.4 times during the quarter. Because of that, the company increased the distribution 1% this quarter and has now raised it 15.4% this year. That boost enabled its general partner Alliance Holdings GP (NASDAQ: AHGP) to grow its distribution another 0.7%. That brought Alliance Holdings GP's year-to-date increase to 33.6%. Both companies plan to continue boosting their payouts on a quarterly basis due to Alliance Resources' cash flow expectations and conservative balance sheet.

What management had to say

CEO Joseph Craft commented on the quarter by saying that,

Coal sales volume and revenue in the 2017 Quarter came in above expectations, reducing our inventories 1.1 million tons from the Sequential Quarter. ARLP's overall results fell short of our expectations, however, due to adverse geological conditions encountered at the Hamilton mine following a longwall move midway through the quarter. With the Hamilton mine recently returning to planned production levels, our solid year-to-date performance and expectations for a heavy shipping schedule over the balance of the year, we believe ARLP's 2017 annual results will finish in line with our previous guidance ranges.

Alliance's third-quarter results went up against an unfavorable comparable quarter where the company benefited from an uptick in the coal market, enabling it to capture higher prices as it unloaded volumes out of its inventory. That masks the fact that its results improved from last quarter as tons sold rose 13.9% while distributable cash flow was 5.5% higher. Because of that, and the Hamilton mine's recent return to planned production levels, the company remains on pace to hit its guidance targets.

Looking forward

Alliance Resource Partners has pre-sold its entire expected production for this year and continues working on securing additional contracts for future volumes. The company believes that current natural gas prices and coal inventory levels at utilities will lead customers to buy more coal in the near-term. Because of that, the company estimates that it will be able to secure enough commitments to support higher sales and production volumes in 2018.

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool recommends Alliance Resource Partners. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Nearly 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Alliance Resource Partners Stock Quote
Alliance Resource Partners
ARLP
$23.71 (2.20%) $0.51

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
371%
 
S&P 500 Returns
120%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.