Metallurgical coal producer Walter Energy Inc. (WLT) reported an operating loss of $1.97 per share in the fourth quarter of 2014, wider than the Zacks Consensus Estimate of $1.60 per share and the year-ago loss of $1.02 per share.

On a GAAP basis, quarterly loss was $1.83 per share compared with a loss of $2.79 per share a year ago.

Walter Energy’s loss of $6.79 per share for 2014 was also wider than the Zacks Consensus Estimate of a loss of $6.68 per share. As for the year-over-year comparison, loss in 2014 broadened from a loss of $3.79 per share in 2013.

Revenue

Walter Energy’s total revenues of $285.6 million in the fourth quarter lagged the Zacks Consensus Estimate of $330 million by 13.5%. Revenues in the quarter also plunged 39.5% year over year reflecting a decline in average selling prices and average volume sold for met coal.

In 2014, revenues of $1,407.3 million missed the Zacks Consensus Estimate of $1,453 million by 3.1% and tumbled 24.4% from 2013.

Highlights of the Quarter

During the quarter, Walter Energy’s metallurgical coal production plummeted 43.8% year over year to 1.8 million metric tons (MMTs). Lower production was primarily due to the idling of mines in Canada and the unfavorable impactof longwall mining in the company’s Alabama underground operation.

Walter Energy’ sales volume in the reported quarter also fell from the prior-year level. Total volumes sold were 2.0 MMTs, down 31% year over year. Out of the total sales volume, hard coking coal (HCC) and low-volatility pulverized coal injection product (PCI) were 1.8 MMTs and 0.2 MMT respectively.

Total cash cost of met coal sales per metric ton (MT) during the quarter was $101.37, down 5.7% year over year. The company succeeded in lowering expenses primarily due to a continuous improvement in mining costs, partially offset by higher cost related to long wall moves.      

However, the company had to digest a nearly 18.8% year-over-year decline in the net selling price of coal. The average net price of met coal decreased to $109.06 per MT.

Selling, general and administrative expenses were $15.6 million, down 23% from $20.3 million in the year-earlier quarter.

Interest expenses were $77.8 million compared with $64.3 million in the prior-year quarter. In the reported quarter, the company refinanced its debts, which areexpected to lower its annual interest expenditure by $5.1 million going forward.

Financial Update

The company continues to maintain a healthy cash balance. Available liquidity at the end of the quarter was $481.2 million, consisting of cash and cash equivalents of $468.5 million plus $12.7 million of availability under the company’s revolving credit facility.

Long-term debt as of Dec 31, 2014 totaled $3.12 billion, higher than $2.77 billion at 2013 end.

Capital expenditure in 2014 was $93 million, a 39.6% decline from $153.9 million in 2013. This reflects Walter Energy’s capital discipline in the face of a worldwide decline in met coal demand.

2015 Guidance

Walter Energy expects met coal sales volume of 8.5–9.0 MMTs in 2015. The company expects capital expenditure in 2015 to be on par with 2014 levels.

Walter Energy expects selling, general and administration expenses to decline by 10% in 2015. Cash interest expense is expected to be around $265 million.

Other Coal Company Releases

CONSOL Energy Inc. (CNX) reported pro forma earnings of 25 cents per share for the fourth quarter of 2014, beating the Zacks Consensus Estimate of 20 cents by 25%.

Arch Coal Inc. (ACI) reported fourth-quarter 2014 adjusted loss of $1.09 per share, much wider than the Zacks Consensus Estimate of a loss of 38 cents.

Peabody Energy Corp. (BTU) reported a loss of $1.21 per share in the fourth-quarter 2014, much wider than the Zacks Consensus Estimate of a loss of 36 cents.

Our View

Walter Energy’s results for the fourth quarter and 2014 were a disappointment with wider-than-expected loss and revenue miss. However, the company is doing its part to cope with the weak coal market through production cuts and cost savings. The World Steel Association forecasts an increase of 2% to 1,594 MT in global steel use in 2015.

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