Alpha Takes Huge GAAP Loss, but May Not Be All That Bad (ANR, ACI)

Alpha Natural Resources Inc. (NYSE: ANR) reported a second-quarter adjusted net loss of $0.33 and $1.85 billion in revenue before markets opened today. Earnings per share for the same period a year ago were $0.96, and last year’s revenue totaled $1.6 billion. The results compare to the Thomson Reuters consensus estimates for a net loss of $0.33 and $1.78 billion in revenue. On a GAAP basis, the company reported a net loss of $10.14.

Alpha’s second-quarter charges reduced the company’s loss from $2.2 billion to just $72 million, and included:

[I]mpairment and restructuring charges, expenses related to the Upper Big Branch (UBB) mine, net amortization of acquired intangibles, changes in fair value and settlement of derivative instruments, merger-related expenses, certain other items, and related tax impacts of these items and other discrete tax items.

The company’s noncash goodwill charge of $1.5 billion reflects “current coal market conditions and lower expected production and shipment levels.” Coal revenues rose on both an adjusted and unadjusted basis.

The company’s chairman and CEO said:

These are extremely challenging times in the U.S. coal industry, with softness in both the thermal and now the metallurgical coal markets and the pace at which the fundamentals changed. … We have continued to optimize our Central Appalachia operations by adjusting our footprint, idling high cost thermal coal and lower-quality metallurgical coal production while focusing on our higher-margin metallurgical products.

Alpha did not provide specific guidance on revenue or earnings, but did offer shipment and price guidance. The company expects total shipment volume of 100 million to 115 million tons in the full fiscal year, including 20 million to 23 million tons of Appalachian metallurgical coal, 38 million to 44 million tons of Appalachian thermal coal, and 42 million to 48 million tons of Western thermal coal. On pricing the company said that 90% of its metallurgical coal production is already priced at an average of $136.06 per ton, all of its Appalachian thermal coal is priced at an average of $66.22 per ton, and all of its Western thermal coal is priced at an average of $12.89 per ton. Today’s average Appalachian coal price is $55.73 per ton.

Along with yesterday’s upgrade from Argus of Arch Coal Inc. (NYSE: ACI), today’s report from Alpha might be another signal that the coal debacle has touched bottom and is beginning a rebound. Alpha, however, remains cautious, especially on thermal coal:

While stockpiles have fallen and thermal coal spot prices have begun to improve, inventories remain elevated, new contracting is limited, and spot pricing remains unattractive, both domestically and in the Atlantic market. As expected, the need for baseload coal-fired generation and an uptick in natural gas prices drove a quick resurgence in PRB shipments, which have recently returned to more historically normal levels for Alpha. Despite the signs of improvement in the domestic thermal coal market, conditions remain challenging.

Shares of Alpha are down about 2% in premarket trading, at $6.77. The current 52-week range is $5.77 to $35.15. Thomson Reuters had a consensus analyst price target of $17.39 before today’s results were announced.

Paul Ausick