Natural Resource Partners Beats Earnings on Diverse Business

Natural Resource Partners L.P. NRP reported second quarter 2014 earnings of 33 cents per unit, down 10.8% year over year. Earnings surpassed the Zacks Consensus Estimate of 30 cents by 10%.
 

GAAP earnings per unit were 28 cents versus 37 cents per unit in the year-ago quarter.  The difference between the GAAP and operating numbers was due to an asset impairment expense of 5 cents.

Total Revenues

Natural Resource Partners' revenues improved 4.4% year over year to $90.6 million. The company benefited from its strategy to diversify its business into other asset classes. In the quarter under review, other-than-coal revenues more than offset the declines in revenues from coal.

Coal royalty revenues declined 21% to $45.8 million from the prior-year quarter. This happened due to a 20% decline in coal production volumes and a 1% decline in average coal royalty revenue per ton to $3.86.

Revenues in the reported quarter surpassed the Zacks Consensus Estimate of $79 million by 14.7%.

Highlights of the Release

Revenues derived from other than coal nearly doubled year over year primarily due to higher oil and gas revenues and the partnership's investment in its soda ash business.

Total operating expenses rose 27.6% to $40.2 million from the second quarter 2013. The increase was primarily due to $2.3 million of operating expenses associated with NRP's Williston Basin oil and gas properties acquired in the second half of 2013.

Coal production during the quarter fell sharply by 20% from the year-ago quarter to 11.8 million tons. This is largely attributed to a production downturn in the Appalachian operations. Metallurgical coal contributed 36% to the overall coal production mix, above the year-ago share of 28%.

Interest expenses rose to nearly $19.1 million from $14.4 million in the year-ago quarter.

Financial Screening

Cash from operating activities during the quarter was $61 million versus $79.7 million in the prior-year quarter.

In the reported quarter, distributable cash flow was $64.9 million, down 28% from the year-ago period. This was due to higher interest expenses and lower distributions received from its investments in OCI Wyoming.

Cash and cash equivalents as of Jun 30, 2014 were $70 million versus $92.5 million as of Dec 31, 2013.

Long-term debt as of Jun 30, 2014 was nearly $1,033.1 million versus $1,084.2 million as of Dec 31, 2013.

Other Coal Company Releases

Peabody Energy Corporation BTU reported a loss per share of 28 cents in the second quarter 2014, marginally wider than the Zacks Consensus Estimate of a loss of 27 cents.

Arch Coal Inc. ACI reported second-quarter 2014 adjusted loss of 46 cents per share, narrower than the Zacks Consensus Estimate of a loss of 48 cents.

Alliance Resource Partners LP ARLP reported second-quarter 2014 earnings of $1.37 per unit, surpassing the Zacks Consensus Estimate of 98 cents.

Our View

Natural Resource Partners reported a modest earnings and revenue beat in the second quarter 2014 primarily due to improved contributions from its oil and gas business. Since recovery in domestic thermal and international met coal demand is lower than expected this year, the partnership will have to depend on its other revenue-generating sources to post strong results.

The 3.1% predicted growth in global steel usage in 2014 by the World Steel Association was supposed to act as a demand catalyst for metallurgical coal.  However, the supply glut in the international markets due to higher production in Australia and lower imports from China is causing a demand-supply imbalance and keeping prices at depressed levels in the near term. This has led the lessees to reduce their metallurgical coal production outlook and will likely lead to lower coal royalty revenues for the partnership going forward.

The partnership currently holds a Zacks Rank #3 (Hold).