Alpha Natural (ANR) Tops Q4 EPS by 20c, Provides Market Overview and 2015 Outlook

Alpha Natural (NYSE: ANR) reported Q4 EPS of ($0.50), $0.20 better than the analyst estimate of ($0.70). Revenue for the quarter came in at $1.1 million versus the consensus estimate of $997.01 million. Adjusted EBITDA was $103 million.

Market Overview

Metallurgical Coal

The global seaborne metallurgical coal market appears to have stabilized over the last several months, with the mid-volatile segment showing relative strength. In fact, the first quarter Australian mid-volatile benchmark increased by $1.50 per tonne to $116.50, while the Australian low volatile hard coking coal benchmark declined $2.00 per tonne to $117.00. Spot assessments have ranged from $110 to $115 per tonne over the past several months.

As a result of significant production increases during 2013 and 2014, Australian export volumes increased by more than 41 million tonnes during those years to 186 million tonnes in 2014, leading to an oversupplied market amid slower growth in the Chinese steel industry. However, it appears that nearly all production expansion in Australia is completed, with expectation of only modest export growth over the next two years. Combined with announced global met production cuts in the 25 million tonne range, and additional production cuts likely, the market seems to be nearing more balanced supply and demand as long as at least modest steel production growth continues.

Alpha recently priced approximately five million tons of domestic metallurgical coal at a substantial premium to the average global price levels. Our 2015 domestic metallurgical coal pricing declined approximately $7 per ton compared to average domestic realizations in 2014. AMFIRE assets, which Alpha sold at the end of 2014, accounted for approximately 800,000 tons of domestic met shipments during 2014.

Thermal Coal

Recent price trends suggest that the thermal coal market will remain challenging for 2015, and the trajectory thereafter will be significantly influenced by the price of natural gas, the pace of economic growth, ongoing regulatory pressures on the domestic coal-fired utility fleet and the weather. Domestic utility inventory levels have approached normal levels from historic lows reached a few months ago. In addition, softer natural gas prices and muted demand for coal, as evidenced by lackluster RFP activity, have contributed to a continued weak pricing environment. Rail service in the west has improved meaningfully since October last year.

After remaining reasonably stable for most of 2014, Northern Appalachia (NAPP) pricing has softened over the last three months, while the Central Appalachia (CAPP) and PRB regions experienced price declines throughout 2014.

Lastly, the seaborne thermal market declined significantly after the collapse in oil prices, with API2 spot pricing weakening from the low $70s per tonne in October to the lower $60s per tonne currently, below the break-even point for many suppliers.

2015 Outlook

We expect to ship between 69 and 80 million tons, including 14 to 17 million tons of Eastern metallurgical coal, 19 to 23 million tons of Eastern steam coal, and 36 to 40 million tons of Western steam coal. As of January 30, 2015, 52 percent of the midpoint of anticipated 2015 metallurgical coal shipments was committed and priced at an average expected per ton realization of $82.88. Based on the midpoint of guidance, 85 percent of anticipated 2015 Eastern steam coal shipments were committed and priced at an average expected per ton realization of $55.62, and 82 percent of the midpoint of anticipated 2015 PRB shipments was committed and priced at an average expected per ton realization of $11.53. Alpha's 2015 guidance for its Eastern adjusted cost of coal sales per ton is $58.00 to $64.00, while Western adjusted cost of coal sales per ton is expected to be between $10.00 and $11.00. Capital expenditures for 2015 are expected to be $225 million to $275 million, while SG&A guidance, which excludes merger related expenses, is $100 million to $120 million. Depreciation, depletion and amortization for 2015 is expected to be between $650 and $750 million. We expect 2015 interest expense and cash paid for interest to be between $290 million and $310 million and $245 million and $255 million, respectively.

For earnings history and earnings-related data on Alpha Natural (ANR) click here.

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