CONSOL Again Excels (revised) - Analyst Blog

(

) reported earnings on the back of record revenue growth at the company's Coal division, which saw a rise for five quarters in a row. Adjusted earnings of 76 cents per share for the second quarter of 2011 matched the Zacks Consensus EPS forecast.

Company-wide revenue grew 83.2% in the second quarter, boasting record revenues of $1.588 billion, driven by higher-than-expected coal sales coupled with favorable coal prices. CONSOL's second quarter revenue also showed substantial margin from the Zacks Consensus Estimate of $1.379 billion.

Second quarter revenue at the Coal Division summed to $1.290 billion with about $1.242 billion coming from company-produced coal tons. The company's total coal sales reached nearly 16.4 million tons in the second quarter.

In the quarter, CONSOL produced 1.4 million tons of low-volatility metallurgical coal, 1.5 million tons of high-volatility met coal, and 12.5 million tons of thermal coal, bringing the company's overall coal production to 15.4 million tons. Of the thermal coal produced, nearly 11.3 million tons were from Northern Appalachia and 1.2 million tons from Central Appalachia.

For the quarter, coal margins springed up by $7.09 per ton, to $21.56 per ton, mainly driven by higher sales prices. Most of the increase in average realized prices came from the company's low-volatile coal sales. However, costs increased approximately $5.79 per ton compared to the prior year quarter.

The average realized price per ton for low-volatile metallurgical coal increased 36.8% from last year, while high-volatile metallurgical coal prices were up only 4%. Realized per ton price for thermal coal also improved 10.3% in the quarter.

During the second quarter, thermal coal inventory decreased by 0.9 million tons to 1.6 million tons.

The company's Gas Division posted a marginal revenue increase of 0.7% year over year, a total of $210 million. Results were mainly affected by poor gas prices.

Total production at the Gas Division shot up 17.6% year over year to 37.5 billion cubic feet (Bcf) or 411.6 million cubic feet per day (MMcf/d) in the quarter. Average realized gas price was $5.07 per Mcf (down 15.9%), while total gas unit costs increased 2.9% to $3.86 per Mcf.

As of June 30, 2011, CONSOL's total liquidity was $1.39 billion, with cash of $25.2 million, accounts receivable securitization facility of $130 million and $1.23 billion under its credit facility. The company's net cash flow from operations totaled $360.2 million for the second quarter. CONSOL's total capital expenditure for the quarter was $330.7 billion.

For 2011, CONSOL Energy retained its coal production guidance of 62-63 million tons and gas production guidance of 150-160 Bcf. The company raised its 2012 and 2013 coal production guidance by 1.0 million tons to 60.5-62.5 million tons per year for both periods.

For the third quarter of 2011, CONSOL's Coal Division plans to produce and sell at around 14.4 to 14.8 million tons, with low-volatile met sales of nearly 1.2 million tons, high-volatile met sales of nearly 1.1 million tons and thermal sales of about 12.3 million tons.

At the end of the second quarter, CONSOL has hedged about 23.9 Bcf of its third quarter 2011 gas production at an average price of $5.12 per Mcf. Additionally, CONSOL has about 84 Bcf of its 2011 gas production hedged at an average price of $5.21 per Mcf. The company also has hedges about 58.4 Bcf and 33.1 Bcf of its 2012 and 2013 gas production at $5.52 per Mcf and $5.21 per Mcf, respectively.

CONSOL's recent results reflected strong revenue growth at its Coal Division driven by continued growth of its coal export business. Going forward, the company estimates to export nearly 10 million tons of coal, with estimated revenues of over $1 billion. In the second quarter, the company's Baltimore Terminal loaded 41 vessels and shipped 3.4 million tons of coal.

To accommodate future growth, the company is expanding this terminal, developing the BMX Mine in the Pittsburgh seam, and re-starting its Amonate Mining Complex. All three of these coal projects are driven by increased worldwide coal demand.

CONSOL's primary competitor,

(

), reported another robust quarter with second-quarter 2011 earnings of $1.11 per share, surging above the Zacks Consensus Estimate of $1.04. The company's robust performance for the quarter was driven by robust coal prices across the board and higher Australian volumes.

Based in Canonsburg, Pennsylvania, CONSOL Energy is a multi-fuel energy producer as well as energy services provider, primarily catering to the U.S. power producers. CONSOL presently has a Zacks #4 Rank (short-term Buy rating). We maintain our long-term Neutral recommendation on the stock.