Cloud Peak Beats EPS, Sales Trail - Analyst Blog

By Zacks | February 14, 2013 AAA

Cloud Peak Energy Inc. (CLD) reported earnings of 54 cents per share in the fourth quarter 2012 compared with 70 cents per share in the year-ago period. The earnings underperformance can be attributed to weak coal market fundamentals and weather variations. Cloud Peak Energy's earnings however beat the Zacks Consensus Estimate by 8%. GAAP earnings in the fourth quarter were 46 cents versus 72 cents in the year-ago quarter. The difference between GAAP and pro forma earnings of 8 cents in the reported quarter was due to a charge from derivative financial instruments.

For 2012, the company's adjusted earnings stood at $2.15 per share compared with $2.47 in 2011. Full-year earnings also surpassed the Zacks Consensus Estimate of $2.11.

GAAP earnings in 2012 were $2.85 versus $3.13 in 2011. The difference between GAAP and pro forma earnings was due to a 58 cent gain from secondary offerings and a 12 cent gain from derivative financial instruments.

Total Revenue

Cloud Peak Energy recorded fourth quarter revenue of $374.8 million, down 6.8% from the year-ago figure of $402.5 million. The revenue downturn resulted from a 6% decrease in mine site sales and lower coal shipments. The quarterly top line fell short of the Zacks Consensus Estimate by 9.0%.

Total revenue for 2012 registered a 2.3% drop to $1,516.7 million from $1,553.6 million in 2011. Revenue for 2012 lagged the Zacks Consensus Estimate of $1,547.0 million.

The company's export for full year 2012 from the logistics segment was roughly 5.8 million tons reflecting a slight decline from year-ago levels on account of a decline in shipments through the Ridley Terminal owing to a rise in rail costs.

Operational Highlights

On the cost side, the company's performance was favorable with operating expenses declining 5.3% to $320.3 million from $338.5 million in the year-earlier period. The company's successful cost containment initiatives in the face of reduced demand during the quarter laid the path for declining expenditures.

Cost of product sold decreased 4.7% to $281.4 million from $295.6 million at the end of Dec 2011. In spite of cost management, operating income slid 14.8% year over year owing to top-line weakness.

In 2012, total cost and expenses witnessed a similar movement and fell 2.0% year over year to $1,274.9 million.

Adjusted Earnings before Interest, Tax, Depreciation and Amortization (EBITDA) in the fourth quarter of 2012 stood at $89.0 million versus $92.9 million in the prior-year quarter while for full year 2012 it was $338.8 million versus $351.7 million in 2011.

Interest expense for the fourth quarter was $10.9 million versus $6.3 million at the end of the fourth quarter of 2011.

Acquisitions & Agreements

Cloud Peak Energy received approval from the Crow Tribal Legislature to jointly work with the Crow Tribe of Indians for the development of 1.4 billion tons of Northern Powder River Basin ("NPRB") coal. In addition, the company inked a deal to sell off its 50% stake in the Decker Mine to Ambre Energy including an option export of up to 5 million tons of yearly capacity via Ambre Energy's proposed Millennium Bulk Terminal.

Recently, Cloud Peak signed an option agreement with SSA Marine to export up to 16 million tons of capacity through the planned Gateway Pacific Terminal in Washington.

Financial Update

Cash and cash equivalents as of Dec 31, 2012 were $197.7 million compared with $404.2 million as of Dec 31, 2011. The company's total available liquidity of $778.0 million indicates a solid balance sheet position.

Cloud Peak Energy generated cash from operating activities of $247.4 million in 2012 compared with $296.8 million in 2011.

Capital expenditures for 2012 were $103.7 million versus $142.7 million in 2011. The company invested $7.4 million in port improvement programs.

Guidance

Cloud Peak Energy estimates coal shipments in the range of 87-93 million tons. The company has contracted to sell 89 million tons for 2013 out of which 81 million tons are contracted for sale at a realized mine site price of $13.40 per ton. The company expects costs to exacerbate and prices to remain at depressed levels in 2013.  

Adjusted EBITDA is forecast in the band of $230-$300 million. Depreciation, depletion and accretion expenses are expected in the range of $110 million to $120 million.

The company has proposed capital expenditures of about $80 million to $110 million for 2013.

Other Coal Company Releases

Arch Coal Inc. (ACI) reported an operating loss of 42 cents per share in the fourth quarter, wider than the Zacks Consensus Estimate loss of 14 cents per share. CONSOL Energy Inc. (CNX) however posted earnings of 43 cents per share for the fourth quarter, surpassing the Zacks Consensus Estimate of 22 cents.

Our View

Cloud Peak Energy yet again posted a positive earnings surprise in the fourth quarter 2012. We believe the rising demand for coal in the emerging economies of China and India will certainly drive exports and reduce coal stockpiles. Moreover, the company could benefit from normal winter weather that will push up domestic demand and hence sales.  

However, regulatory pressure and increased coal-to-gas switch are threats plaguing the company. Cloud Peak Energy currently has a Zacks Rank #3 (Hold).

Based in Gillette, WY, the company through its subsidiaries engages in coal mining operations in the PRB. It produces and sells sub-bituminous thermal coal with low sulfur content primarily to electric utilities.

A Zacks Rank #1 (Strong Buy) operator involved in coal generation is DTE Energy Company (DTE) whose earnings is yet to release.

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