What happened
Shares of Alpha Metallurgical Resources (AMR 2.67%), one of the largest domestic producers of steelmaking coal, rose a dramatic 13.5% at one point in early trading on March 7. The big news was the company's pre-market earnings release. Investors seem to have approved of the news, which makes sense, but there were some things to worry about in there, too.
So what
On the top line, Alpha Metallurgical posted coal revenue of $826.5 million in the fourth quarter of 2021. That's up from just $323 million in the same quarter of 2020, a huge improvement. The company has been revamping its business, selling assets and circling the wagons around its best operations, so the year-over-year view isn't, perhaps, the best comparison. That said, coal revenue in the third quarter of 2021 came in at $647 million, so even sequentially from the third quarter, top-line results were pretty impressive. What makes this last comparison even more impressive is that coal volumes fell 15% between the third and fourth quarter. A nearly 60% increase in the realized price of met coal is what drove coal revenue higher.
Image source: Getty Images.
On the bottom line, the company posted earnings per share of $13.30 in the fourth quarter of 2021, up from a $3-per-share loss in 2020 and a profit of just $4.43 in the third quarter of 2021. That's a huge improvement, and it also beat analyst expectations of $11.43 per share. To the company's credit, it is using the outsize cash flows it's seeing today to pay down debt and return value to shareholders via stock buybacks. The problem, however, is that commodities tend to be highly cyclical. This is particularly true of met coal, which generally tracks along with steel demand. Steel markets are tight today. As long as the company continues to get hefty prices for the coal it sells, performance should remain robust, but once met coal pricing starts to fall, the revenue and earnings winds here will likely change dramatically.
Now what
Investors like it when companies put up good financial results, so it makes sense that Wall Street bid up the price of Alpha Metallurgical today. However, more conservative types should probably tread with caution here, given that coal prices can, and do, change quickly. And once the news turns negative, mercurial short-term traders are likely to dump this stock, which has doubled so far in 2022.
