On Nov 24, 2015, we have issued an updated research report on Natural Resource Partners LP NRP. Downturns in the metallurgical coal market, proposals for curbing carbon emissions and increasing usage of natural gas for power generation are some of the threats to the partnership. However, improving fundamentals in the aggregates market and cost-reduction initiatives are expected to ease some of the pressure.
Natural Resource Partners’ third-quarter 2015 earnings of 23 cents per unit beat the Zacks Consensus Estimate of 13 cents by a wide margin of 77%. Revenues of $125.5 million exceeded the Zacks Consensus Estimate of $120 million by 4.5%.
Revenues increased year over year on the back of an improvement in the aggregates market. The favorable trend is also expected to continue going forward. Natural Resource Partners has initiated cost-reduction measures to cope with the lingering softness in commodity prices and support margins. Additionally, the partnership strives to improve its cash flow generating capacity to counter difficult market conditions.
The U.S. Environmental Protection Agency’s programs to curb carbon pollution from the power sector could lower thermal coal demand going forward. This will force the company’s lessees to cut coal production, which will ultimately result in lower coal royalty revenues for the partnership. Replacement of coal with natural gas and declining coal prices are affecting royalty revenues from its thermal coal assets.
Also, dependence on a few customers for a major part of its royalty revenues could significantly impact the prospects of the partnership. Bankruptcy of its second-largest coal lessee, Alpha Natural Resources, further adds to the woes.
Apart from Natural Resource Partners, major coal producers like Arch Coal Inc. ACI, Peabody Energy Corporation BTU and CONSOL Energy Inc. CNX have also been affected by the massive fall in demand and consequent decline in coal prices, which took a toll on their earnings performance in the third quarter.
ZACKS RANK
Natural Resource Partners carries a Zacks Rank #3 (Hold).
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Click to get this free report CONSOL ENERGY (CNX): Free Stock Analysis Report ARCH COAL INC (ACI): Free Stock Analysis Report PEABODY ENERGY (BTU): Free Stock Analysis Report NATURAL RSRC LP (NRP): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research