Please ensure Javascript is enabled for purposes of website accessibility

Why Units of Alliance Resource Partners Are Rallying Today

By Matthew DiLallo - Feb 1, 2021 at 3:12PM

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 producer reported some good news.

What happened

Units of Alliance Resource Partners (ARLP -0.10%) jumped more than 11% by 2:30 p.m. EST on Monday. Powering the coal-producing MLP were its fourth-quarter results. 

So what

Alliance's revenue rose 3.1% during the fourth quarter compared to the third quarter to $366.5 million, while its EBITDA increased by 2.1% to $121.4 million. Driving that sequential improvement were increased coal sales, and higher oil and gas royalty revenues. While revenue was down 19.2% year over year because of the impacts from the COVID-19 pandemic, EBITDA only fell 3.8% thanks to the positive effect of its cost-cutting initiatives. 

Pieces of coal in the hands of a miner.

Image source: Getty Images.

The coal miner also generated $90.6 million of free cash flow during the fourth quarter. That allowed it to reduce debt and finance lease obligations by $67.8 million, which helped boost its liquidity by $70.2 million. The company ended 2020 with a 1.54 times debt-to-EBITDA ratio, a nearly 10% improvement from the third quarter and comfortably below its 2.5 times leverage covenant. One factor that helped the company generate so much excess cash was its prior decision to suspend its distribution in March. The company plans to review that policy at the end of the first quarter. If market conditions and its balance sheet continue improving, it could reinstate a quarterly distribution.

Now what

Alliance Resource Partners expects to sell 10% more coal in 2021 than last year, thanks to its existing contracts and improving market conditions. Add that to rebounding oil and gas prices, and the company anticipates that its EBITDA will rise this year. That could enable it to start returning cash to investors once again.

However, the energy company's longer-term outlook remains cloudy, given the energy sector's transition to renewable energy. With most utilities planning to retire their coal plants in the coming years, and oil and gas usage also likely to diminish over time, Alliance will need to change fuel sources before it runs out of gas.

Invest Smarter with The Motley Fool

Join Over 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, L.P. Stock Quote
Alliance Resource Partners, L.P.
$19.88 (-0.10%) $0.02

*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 service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/26/2022.

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.