What: CONSOL Energy's (NYSE:CNX) stock fell by nearly double-digits Monday morning before recovering most of those losses. The culprit was the company's announcement of a preliminary financial update for the second-quarter in which the company now expects to report a loss. Given that the consensus analyst estimate was for a gain of $10.4 million, or $0.10 per share, this is a significant swing.
So what: CONSOL Energy is blaming the loss on weaker than expected energy prices. That's not too surprising as commodity prices were weaker last quarter. Meanwhile, on the operational side the company expects the quarter to be in-line as both natural gas and coal production are expected to meet its previous guidance. In fact, the company still remains on pace to grow its natural gas production by 30% this year and 20% next year. Further, the company expects to generate free cash flow over the next 18 months suggesting that it doesn't see this weakness lasting.
In addition to the operating loss, weak energy prices are also expected to yield a significant impairment charge that CONSOL will record in the quarter. This charge stems from a reduction in the carrying value of the company's conventional shallow oil and gas assets, which is being reduced due to depressed commodity prices. While this is a non-cash charge, and doesn't impact the company's reserves, it does lower the net asset value of the company.
Now what: Investors don't like downside surprises, which is why shares sold off. However, the fact that the stock recovered most of those early losses can be attributed to the fact that the company doesn't see its losses mounting as its growth plan remains on track.