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Alliance Resource Partners, L.P. Finished 2017 Strong

By Matthew DiLallo - Jan 29, 2018 at 11:17AM

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The coal MLP expects the momentum to continue in 2018.

Coal-producing master limited partnership (MLP) Alliance Resource Partners ( ARLP 3.43% ) went up against a tough comparable quarter when it benefited from an uptick in the coal market last year by unloading some of its unsold inventory. That masked its solid performance this past quarter, which put a cap on a year when it made significant forward strides. That company expects these improvements to continue in 2018.

Alliance Resource Partners results: The raw numbers

Metric

Q4 2017

Q4 2016

Year-Over-Year Change

Revenue

$483.2 million

$527.4 million

(8.4%)

Tons sold

10.1 million

10.5 million

(3.8%)

Coal sales price per ton

$45.03

$48.01

(6.2%)

Distributable cash flow

$109.1 million

$165.4 million

(34%)

Data source: Alliance Resource Partners.

Coal in the hands of a miner.

Image source: Getty Images.

What happened with Alliance Resource Partners this quarter?

Alliance Resource Partners went up against a tough comparable quarter.

  • The combination of lower volumes and realized coal prices pushed Alliance's revenue and cash flow lower versus the year-ago period. However, those numbers don't tell the whole story because the company's year-ago results benefited from the sale of one million tons of coal out of inventory. For a better comparison, revenue and tons sold rose 6.6% and 5.2%, respectively, versus the third quarter while distributable cash flow jumped 14.7%.
  • For the full year, production increased 6%, which when combined with lower expenses, enabled the company to produce $420.9 million in distributable cash flow, enough to cover its payout by a comfortable 1.75 times. That excess cash, along with a $400 million bond offering, helped shore up the balance sheet while also enabling the company to make investments into the oil and gas sector to diversify and grow cash flow.
  • The improvements in both the coal market and Alliance Resource Partners' financial situation enabled the company to start growing its distribution again last year, with the payout up 16.6% over the past year, including a 1% increase last week. That boost allowed its general partner Alliance Holdings GP (NASDAQ: AHGP) also to begin raising its payout. Alliance Holdings GP's payout is now up 35% over the past year after including last week's 1% increase.

What management had to say

CEO Joseph Craft commented on the company's progress last year by saying:

ARLP achieved significant milestones and delivered impressive performance in 2017. Operationally, ARLP increased year-over-year production volumes by more than 6% or 2.4 million tons and reduced Segment Adjusted EBITDA Expense by $1.81 per ton... This solid performance from our coal business and increased contribution from our investments in oil and gas minerals and compression services led ARLP to strong EBITDA and distributable cash flow in 2017. These results along with the successful completion of an 8-year, $400 million bond offering earlier in the year contributed to an improved balance sheet, allowed ARLP to return to growing distributions to unitholders.

As Craft notes, Alliance made several positive strides last year. Not only did the company benefit from self-help efforts such as pushing down costs and diversifying into oil and gas, but it felt the impact of an improving coal market. These factors set it up for success in 2018.

Looking forward

Craft said that "ARLP enters 2018 poised for continued strong operating and financial performance." He noted that the recent cold stretch across the U.S. caused utilities to burn through their coal stockpiles, which should fuel increased demand in the first half of the year. As a result, the company is planning to boost production 6% this year and has already sold out 85% of its projected output. Further, the company noted that its oil and gas business should add $25 million to $35 million to its bottom line in 2018, with similar growth expected for the next several years. These factors lead Alliance to believe that it can increase its distribution to investors by 4% this year.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Alliance Resource Partners, L.P. Stock Quote
Alliance Resource Partners, L.P.
ARLP
$10.26 (3.43%) $0.34

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