Units of coal-focused master limited partnership (MLP) Alliance Resource Partners (NASDAQ:ARLP) rose just shy of 12% in the first half hour of trading on Oct. 26. From there, however, Alliance started to trend lower, with the units up just 1% or so at roughly 2 p.m. EDT. There's good reasons for both of these moves.
Leading off Alliance Resource's third-quarter earnings release were the facts that revenue increased 39.4%, EBITDA jumped 146.4%, and net income was higher by 158.3%. Those are incredible numbers for a business that mines coal, which is a largely out-of-favor energy source these days. The fly in the ointment here is that these increases are sequential from the second quarter. That quarter was impacted by the global economic shutdowns used to slow the spread of COVID-19. In other words, the third quarter showed that Alliance's business was recovering from the worst of the pandemic hit. To be fair, that is good news.
However, reading a bit further into the release, investors quickly find that year-over-year third-quarter results weren't all that great. Compared with the same period in 2019, revenue was lower by 23.5% and net income fell 30%. EBITDA was down by a relatively modest 3.5%, but that only softens what is otherwise a pretty ugly blow. The main reasons for these not-so-great numbers were falling coal demand and prices. In other words, the long-term downtrend in the coal market has not abated. That's not great news.
Times have been tough in the coal sector for years as key customers, largely utilities, have shifted toward natural gas and clean energy sources like wind and solar power. Alliance has been managing the industry change in relative stride compared with peers, many of which have succumbed to bankruptcy. That said, the MLP isn't paying a distribution, and results -- while improved sequentially -- are still not very good reading. It's little wonder that the quick burst of excitement cooled off as the trading day wore on.