Shares of natural gas producer CNX Resources (NYSE:CNX) were down 13.9% as of 1 p.m. EDT today. The precipitous stock drop came after the company reported first-quarter earnings that were well below Wall Street's expectations, and reduced EBITDA (earnings before interest, taxes, depreciation, and amortization) projections for 2019.
CNX Resources reported a net income loss of $87 million, or $0.44 per share, when Wall Street was expecting a loss of $0.22 per share. Much of that loss came in the form of unrealized commodity derivatives, which basically means the value of some of its contracts declined with the price of natural gas. Unrealized commodity gains tend to wax and wane over time, so the fact that the company missed estimates because of these unrealized losses shouldn't be too much of a concern.
What is less encouraging, though, was management's guidance reduction for the year. CNX now expects to generate adjusted EBITDAX (EBITDA plus exploration expenses) between $770 million and $790 million for 2019. That range is down from $790 million to $825 million, and is largely attributed to lower natural gas prices.
As much as companies like CNX Resources try to protect their cash flow with derivative contracts and other strategies to sell oil and gas at set prices, they are ultimately at the whims of commodity prices.
For its part, CNX is in better shape than most natural-gas-focused producers. In 2019, it has a target of $500 million in free cash flow that it intends to use to pay down debt and buy back shares. With the volatility of oil and gas prices lately, though, it may have to reassess those targets.