Nat Gas Drives CONSOL Energy Earnings Beat - Analyst Blog

Diversified fuel producer CONSOL Energy Inc. CNX reported pro forma earnings of 53 cents per share for the first quarter of 2014, surpassing the Zacks Consensus Estimate of 20 cents by a whopping 150%. The company registered a loss of 2 cents in the comparable year-ago quarter.

GAAP income at the company was 50 cents per share versus a loss of 1 cent per share in the prior-year quarter. The difference between GAAP and operating income in the reported quarter was due to a loss of 3 cents relating to discontinued operations.

Revenue

CONSOL Energy's quarterly revenues increased 14.9% to $0.96 billion from $0.84 billion in the year-ago quarter. The top-line surpassed the Zacks Consensus Estimate of $0.88 billion by 9.7%.

The year-over-year increase in revenue was primarily due to thriving natural gas and natural gas liquid sales.

Segment Performance

Gas Division

During the reported quarter, the company registered 23.5% year-over-year growth in gas production volumes to 48.4 billion cubic feet (Bcf). Gas production in the reported quarter was within the expected range of 47–49Bcf.

The upside was primarily due to a $1.22 per one thousand cubic feet (Mcfe) increase in average sales price.

Coal Division

In the quarter, the company produced 8.1 million tons of coal, of which 1.2 million tons were low-volatile metallurgical coal, 0.5 million tons were high-volatility and 6.5 million tons were thermal coal. Of the total thermal coal production, 6.0 million tons came from Northern Appalachia while 0.5 million tons were from Central Appalachia.

The average sales price for low-volatile metallurgical coal tumbled 25.2% to $76.80 per ton, while the sales price for high-volatile metallurgical coal was down 18.4% to $56.35 per ton. Sales price for the company's thermal coal was up 1.1% to $65.17 per ton in the quarter. In the first quarter, CONSOL Energy's coal inventory increased by 59,000 tons to 641,000 tons.

Financial Update

As of Mar 31, 2014, the company had a cash balance of $314.1 million versus $327.4 million as of Dec 31, 2013.

Long-term debts as of Mar 31, 2014, were $3.11 billion, marginally lower than $3.12 billion as of Dec 31, 2013.

Cash from operating activities in the first quarter of 2014 was $0.35 billion versus $$0.22 billion in the year-ago quarter.

Capital expenditure was $ 0.45 billion in the reported quarter, up 28.9% from $0.34 billion in the year-ago quarter.

Guidance

CONSOL Energy expects second quarter 2014 coal sales in the range of 8.1–8.5 million tons and 2014 coal sales in the range of 31−33 million tons. CONSOL expects 2015 coal sales to reach 33.6 million tons.

CONSOL Energy projects second quarter 2014 gas production in the range of 50–52 Bcfe and 2014 production in the band of 215–235 Bcfe. The company expects 2015 and 2016 gas production to grow by 30%.

For 2014, the company hedged 159.9 Bcf of total gas production at an average price of $4.58 per Mcf.

Other Coal Releases

Peabody Energy Corp. BTU reported a loss per share of 19 cents in the first quarter 2014, lagging the break-even Zacks Consensus Estimate by a wide margin.

Arch Coal Inc. ACI reported first-quarter 2014 adjusted loss of 60 cents per share, much wider than the Zacks Consensus Estimate of a loss of 42 cents.

Our View

CONSOL Energy's emphasis on natural gas assets has started to yield results. During the quarter the company invested $0.27 billion in natural gas projects. Thanks to these steady investments, the company expects to register a 30% hike in gas production over the next couple of years.

As for its coal business, the startup of BMX Mine longwall operation in the reported quarter also helped the company. Despite selling nearly half of its coal assets, the company still retains a few low-cost, high-quality coal mines. These assets will allow CONSOL Energy to reap benefits from any rebound in coal demand either in the U.S. or in international markets.

CONSOL Energy presently holds a Zacks Rank #3 (Hold). Another coal operator Rhino Resource Partners LP RNO currently having a Zacks Rank #1 (Strong buy) is slated to release its first-quarter 2014 earnings on May 1.