The pure play Powder River Basin coal operator, Cloud Peak Energy CLD, reported operating earnings of 24 cents per share, up substantially from 4 cents per share earned in the prior-year quarter. The Zacks Consensus Estimate was pegged at a loss of 13 cents.

While the majority of coal companies are incurring losses, the strong performance of Cloud Peak Energy has seen its shares surging by nearly 18.1% during after market trade to reach $3.20, at the time of writing this article.

Despite the ongoing weakness in coal demand and softness in prices in domestic and international markets, the outperformance from Cloud Peak was primarily due to its customers taking delivery of contracted coal.

Total Revenue

Cloud Peak Energy’s quarterly revenues decreased 11.9% year over year to $301.7 million. However, revenues surpassed the Zacks Consensus Estimate of $300 million by a marginal 0.6%.

Highlights of the Release

Cloud Peak Energy through a combination of steady shipments, lower diesel prices, and good overall cost control was able to reduce unit costs. The average cost of product sold per ton from its Owned and Operated Mines segment was $9.15, down 12.4% year over year. As a result, cash margin per ton sold was $3.47, up 29.5% year over year.

Coal shipments for the third quarter of 2015 were 20.8 million tons, down from 21.5 million tons for the same period in 2014.

Total costs and expenses in the reported quarter were $284.2 million, down 14.1% year over year, primarily due to a 13.8% decline in cost of product sold.

During the quarter, the company announced that it has come to an agreement with a landowner in the vicinity of its Cordero Rojo mine in Wyoming, which will provide Cordero Rojo with access to nearly 95 million tons of additional coal. This would enhance the flexibility of the mine’s future development. The addition will now provide nearly four years of production volume to its reserves at a modified production rate.

Financial Update

As of Sep 30, 2015, the company’s cash and cash equivalents declined to $123.6 million from $168.7 million as of Dec 31, 2014.

Senior notes as of Sep 30, 2015, were $490.8 million, marginally higher than $489.7 million as of Dec 31, 2014.

Cash from operating activities in the first nine months of 2015 was $62.1 million compared with $42.1 million in the same period of 2014.

Capital expenditure for the first nine months of 2015 was $28.1 million, higher than the comparable year-ago level of $14.7 million.

Guidance

Cloud Peak Energy expects 2015 coal shipment in the range of 75−77 million tons. The company expects 2015 capital expenditure in the range of $40.0−$50.0 million.

For 2016, Cloud Peak has committed to sell 67 million tons from its three mines. Of the committed production, 57 million tons are under fixed-price contracts with a weighted-average price of $12.95 per ton.

For 2017, Cloud Peak has committed to sell 40 million tons from its three mines. Of this, 29 million tons are under fixed-price contracts with a weighted-average price of $13.14 per ton.

Coal Releases

CONSOL Energy Inc. CNX reported an adjusted loss of 28 cents per share for the third quarter of 2015, much wider than the Zacks Consensus Estimate of a loss of 2 cents.

Westmoreland Coal Co. WLB reported a loss of $1.20 per share in the third quarter of 2015, much wider than the Zacks Consensus Estimate of a loss of 63 cents.

Peabody Energy BTU reported a loss of $8.13 per share in the third quarter of 2015, narrower the Zacks Consensus Estimate of a loss of $8.20.

Our View

The solid performance from Cloud Peak Energy in the third quarter is a welcome change from the dismal showing in the coal space so far. With the majority of coal industry players reporting in the red, Cloud Peak’s earnings actually reverses the trend.

In spite of that, coal industry operators are going to face tougher market conditions going forward. Lower domestic coal demand is primarily due to cheap natural gas prices and stricter environmental regulations and we see no respite in the future. Internationally, the drastic drop in demand for coal in China and a stronger U.S. dollar have limited the export market of the U.S. players.

We do not expect demand for coal to improve from current levels both in the domestic and international markets. However, higher coal imports from the other Asian countries, other than China, might somewhat improve the scenario.  

Cloud Peak Energy currently has a Zacks Rank #3 (Hold).

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