Diversified fuel producer CONSOL Energy Inc. CNX reported an adjusted loss of 37 cents per share for the second quarter of 2015. The Zacks Consensus Estimate was earnings of 1 cent. The company had reported earnings of 7 cents per share in the second quarter of 2014.
Consol Energy Inc. - Earnings Surprise | FindTheBest
GAAP loss was at $2.64 per share compared with a loss of 11 cents in the prior-year quarter. The difference between GAAP and operating loss in the reported quarter was due to adjustments of certain one-time items.
Revenue
CONSOL Energy’s quarterly revenues decreased 30.8% to $648.9 million from the year-ago quarter. The top line also lagged the Zacks Consensus Estimate of $795 million by 18.4%.
The decline in total revenues was primarily due to the depressed commodity price environment, which has taken its toll despite improvement in production volumes.
Segment Performance
Coal Division
In the quarter, the company produced 7.5 million tons of coal. Of the total production, 5.9 million tons came from Pennsylvania operations, 1 million tons from Virginia and 0.6 million tons from Other operations.
The company sold 5.7 million tons of coal from its Pennsylvania operations, down by 1.4 million tons from the year-ago quarter. The realized price per ton of coal decreased 8.6% year over year to $56.21.
From its Virginia operations, the company sold 1.1 million tons of coal, up 22.2% year over year, with the sales price per ton down 18.6% year over year to $57.76.
From its Other operations, the company sold 0.5 million tons, unchanged from the year-ago level. However, the sales price per ton was up a marginal 0.7% year over year to $60.84.
Exploration & Production (E&P) Division
During the reported quarter, the company registered 45.5% year-over-year growth in gas production volumes to 75.5 billion cubic feet equivalent (Bcfe), which was slightly higher than the guidance of 71–75 Bcfe.
Despite the increase in gas output, the full benefit could not be realized due to a year-over-year decline of $2.20 in the average selling price per one thousand cubic feet (Mcf).
Hence, the production growth notwithstanding, the E&P Division reported a net loss of $23.7 million as against a net income of $15.5 million in the year-earlier quarter.
Financial Update
As of Jun 30, 2015, the company’s cash and cash equivalents declined significantly to $10 million from $176.9 million as of Dec 31, 2014.
Total long-term debts as of Jun 30, 2015, were $2.6 billion, higher than $3.3 billion as of Dec 31, 2014.
Cash from operating activities in the first half of 2015 was $294.2 million compared with $557.1 million in the first half of 2014.
Capital expenditure for the quarter was $341.8 million, lower than the year-ago level of $368.3 million.
Guidance
CONSOL Energy expects third-quarter 2015 coal sales in the range of 6.6–7.1 million tons and 2015 coal sales in the range of 28.4−29.9 million tons. The company expects 2016 coal sales to fall within 30.6−33.4 million tons.
CONSOL Energy projects third-quarter 2015 gas production of 75–79 Bcfe and 2015 production of 300–310 Bcfe. Gas production is expected to improve 30% in 2015 and 20% in 2016 over prior-year levels.
Total gas production hedged by the company for the third quarter is 140.8 Bcfe, at an average price of $3.94 per Mcf.
Upcoming Peer Releases
Cloud Peak Energy Inc. CLD is expected to release its second-quarter results on Jul 29, 2015. The Zacks Consensus Estimate stands at a loss of 86 cents per share.
Arch Coal Inc. ACI is slated to release second-quarter results on Aug 4, 2015. The Zacks Consensus Estimate for the quarter is at a loss of 59 cents per share.
Our View
CONSOL Energy has been shifting its focus to natural gas and in the process has divested a few of its coal assets. The company recently separated its coal business to form a thermal MLP called CNX Coal Resources LP CNXC. This strategic move is expected to benefit the company in the long term.
Higher gas production volumes notwithstanding, CONSOL Energy has been hit by weak commodity prices. However, the company is well placed to take advantage of any recovery in prices.
CONSOL Energy presently carries a Zacks Rank #2 (Buy).
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