Natural Resource Partners Beats on Earnings, Down Y/Y - Analyst Blog

Natural Resource Partners L.P. NRP reported first quarter 2014 earnings of 29 cents per unit, down 33% year over year. Earnings, however, managed to edge past the Zacks Consensus Estimate of 28 cents.

The earnings downside reflects lower production by lessees and a decline in coal royalty receipts.

Total Revenues

Natural Resource Partners' top line plunged 15% year over year to $80.3 million on account of a 33% drop in coal revenues. Revenues in the reported quarter nominally surpassed the Zacks Consensus Estimate of $78 million.

Coal royalty revenues declined 20% to $43.5 million from the prior-year quarter. This happened due to lower realizations from the Appalachian operations. Average coal royalty per ton also decreased 9.9% year over year.

Production Update

Coal production during the quarter fell sharply by 11.4% from the year-ago quarter to 12.3 million tons. This is largely attributed to a 19.6% production downturn from Appalachian operations. Metallurgical coal contributed 28% to the overall coal production mix, marginally above the year-ago share of 27%.

Illinois Basin clocked a production upsurge of 7.9% year over year to 3.1 million tons. Northern Powder River basin and Gulf coast operation also registered a 10.6% and 34.1% increase in production, respectively, from the year ago quarter.

Operational Highlights

Total operating costs and expenses of Natural Resource Partners during the quarter totaled $27.9 million, down 12.4% from the prior-year quarter. A 49.4% and 8.1% decrease in general and administrative expenses as well as transport expense led to lower costs.

Interest expenses rose to $19.9 million from $14.7 million in the year-ago quarter.

Financial Screening

Cash from operating activities during the quarter was $38.6 million versus $43.9 million in the prior-year quarter.

In the first quarter, distributable cash flow was $38.9 million, down 12% from the year-ago period. This was due to lower revenues from coal royalty partially offset by an additional $11.4 million received as distributions associated with investments in OCI Wyoming.

Cash and cash equivalents as of Mar 31, 2014 were $54.8 million versus $92.5 million as of Dec 31, 2013. The substantial decrease in Natural Resource Partners' cash balance from the year-ago quarter was due to cash payments including interest payments and annual long-term incentive plan payments.

Long-term debt as of Mar 31, 2014 was $1,045.2 million versus $1,084.2 million as of Dec 31, 2013.

Other Coal Company Releases

SunCoke Energy, Inc. SXC incurred a first quarter loss of 11 cents per share, much wider than the Zacks Consensus Estimate of a loss of 1 cent per share.

Alliance Resource Partners L.P. ARLP posted earnings per unit in the first quarter of 2014 of $2.20, higher than the Zacks Consensus Estimate $1.74.

Alliance Holdings GP, L.P. AHGP reported first-quarter 2014 earnings of $1.13 per unit, beating the Zacks Consensus Estimate by 14 cents.

Our View

Natural Resource Partners reported modest earnings and revenue beat in the first quarter 2014. However, year-over-year results were dismal as weakness in the coal market badly hit coal production.

Going ahead, the 3.1% predicted growth in global steel usage in 2014 by the World Steel Association will act as a demand catalyst for metallurgical coal. Yet, the current demand-supply imbalance will keep prices at depressed levels in the near term. This has led the lessees to reduce its metallurgical coal production outlook. The partnership currently holds a Zacks Rank #4 (Sell).