Alpha reports 1st earnings since acquiring Foundation, raises met coal guidance

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Related Companies Alpha Natural Resources Inc (ANR)

Related Documents Earnings Release (ER) Alpha Natural Resources Inc 9/30/2009, filed on 11/3/2009

Alpha Natural Resources Inc. on Nov. 3 reported its first quarterly financial results since completing its blockbuster deal to acquire Foundation Coal Holdings Inc. on July 31.

Saddled with significant merger-related expenses, Alpha reported a third-quarter net loss of $19.5 million, or 19 cents per share, compared to net income of $67.4 million, or 93 cents per share, in the year-ago quarter prior to the Foundation merger. Excluding merger-related expenses and other unusual items, Alpha's third-quarter adjusted income from continuing operations was $49.4 million, or 47 cents per share.

The Thomson First Call mean estimate of analysts' expectations had called for Alpha to report third-quarter earnings of 38 cents per share, according to SNL Financial.

Alpha's merger-related expenses and other unusual items reported during the quarter included $42.4 million of pretax merger-related expenses; a net $58 million pretax expense for amortization of acquired coal supply agreements; a $23.5 million pretax, noncash charge arising from the termination of hedge accounting for an interest rate swap; a $5.6 million pretax expense for loss on the early extinguishment of debt; and a $22.2 million benefit arising from the reversal of a deferred income tax asset valuation allowance.

The combined company reported EBITDA from continuing operations of $112.6 million in the third quarter, compared to $122.3 million in the same period last year. Excluding merger-related expenses and other unusual items, the combined company posted EBITDA from continuing operations of $160.7 million. Alpha reported coal revenues of $662.4 million in the third quarter, compared to $601.5 million in the same period of 2008 and $333.9 million in the second quarter of this year.

"Alpha's strong third quarter 2009 performance is particularly noteworthy in light of the continued weakness in the domestic thermal coal market and the fact that we closed our merger with Foundation Coal at the end of July, creating the third largest U.S. coal company by most measurements," Alpha CEO Kevin Crutchfield said in a Nov. 3 statement. "The ability to deliver strong quarterly results, exclusive of merger-related and other unusual items, is a testament to the hard work and dedication of our entire workforce, which is now 6,200 strong."

Alpha sold 16.5 million tons of coal during the third quarter, compared to 6.9 million tons in the year-ago quarter. On a regional basis, Alpha's coal sales totaled 8.6 million tons from its Powder River Basin operations, 5.8 million tons from its Eastern steam coal mines and 2.1 million tons from its Eastern metallurgical mines. The company's met coal sales volumes were down fairly substantially from the third quarter of 2009, when Alpha sold 3 million tons of met coal.

While met coal volumes were weak during the quarter due to a hangover from the global economic downturn, Crutchfield said the met coal market is showing signs of life, which echoed comments from other U.S. producers in the past month or two. "We will continue to pursue a pragmatic and restrained approach to production in the current market environment in which decreased coal-fired generation and high utility inventories have significantly reduced demand for thermal coal. However, in the last few months interest in metallurgical coal appears to have picked up markedly, discussions with metallurgical coal customers have increased, and order flow is beginning to result from this heightened activity," he said.

In light of the improving conditions in the met coal market, Alpha increased its guidance for met coal shipments in 2010 to a range of 10 million to 12 million tons, compared to previous guidance of 9 million to 11 million tons. "As the largest U.S. supplier of metallurgical coal, Alpha remains highly leveraged to this market, and with 54% of our metallurgical coal uncommitted for 2010, we believe current market developments position Alpha favorably to capitalize on this opportunity," the company said.

On the pricing front, Alpha's average per-ton realization in the third quarter was $40.25, compared to $86.58 in the year-ago period, primarily reflecting the influence in the third quarter of two months of PRB sales at an average per-ton realization of $10.39. The average per-ton realization for Eastern steam coal sold during the most recent quarter was $64.43, compared to $52.10 in the third quarter of 2008, and the average per-ton realization for Eastern metallurgical coal sold during the third quarter was $96.92, compared to $132.35 in the year-ago period.

Alpha said its planned coal production is fully committed and priced for the balance of 2009 and, based on the midpoint of the company's shipment guidance range, nearly 90% of Alpha's 2010 expected shipments are committed for delivery, with 80% committed and priced. Alpha noted that it proactively adjusted production levels in 2009 to match demand levels by reducing overtime, taking shifts out, selectively closing higher-cost mines and cutting back on contractor production. Thus, as the markets for metallurgical and thermal coal improve, Alpha said it will be able to ramp up production quickly to an annual capacity of more than 90 million tons.

Alpha's coal sales guidance for 2009 and 2010 remained mostly the same, as the company said Nov. 3 that it expects total shipments of 84 million to 88 million tons in 2009 and 80 million to 90 million tons in 2010. The only noticeable change in addition to the increased met coal guidance for 2010 was a slight tick down in anticipated PRB coal shipments, which the company expects to total 47 million to 50 million tons next year, compared to prior guidance of 48 million to 51 million tons.