Cloud Peak Energy (CLD) Reports Q2 EPS of 1c, Updates Guidance

Cloud Peak Energy, Inc. (NYSE: CLD) reported Q2 EPS of $0.01, which may not compare to the analyst estimate of ($0.01). Second quarter Adjusted EBITDA was $45.2 million.

FY14 Adjusted EBITDA is seen at $180 - $210 million.

"Based on data from the Energy Information Administration, through April 2014, U.S. electric generation from coal-fired power was up seven percent and coal consumption was 291 million tons, up 18 million tons compared to last year. We understand that inventory levels vary significantly from utility to utility, with some having very low levels forcing them to conserve their coal burn. Total electricity generation is up four percent while natural gas generation was down three percent, which emphasizes the importance of coal-fired generation as a reliable, low-cost energy source for the U.S.

During the second quarter of 2014, domestic coal market fundamentals continued to be favorable, but the lingering performance issues with the western railroads have forced several utilities to conserve coal during the quarter in anticipation of normal summer burn requirements. Even with utilities conserving coal, inventories are at the lowest levels in many years. Due to a slow start to the summer cooling season and increased gas production, natural gas storage is recovering from very low levels at the end of the winter. Natural gas prices have remained consistently above $3.50/mmBtu, making PRB coal economic where it is available.

Domestic utility stockpiles of PRB coal are estimated to have fallen to 62 million tons at the end of June 2014, down 18 percent or 14 million tons from a year ago. We and our customers will continue to focus on ensuring the rail delivery of their contracted coal. So far this year, we have seen an increase in requests for additional coal for delivery this year. As we are fully sold out for 2014, we have not been bidding on these requests.

While shipments over the first half of the year have been disappointing, we continue to expect an improvement in deliveries in the second half of the year. With the planned improved deliveries, we believe that prices will be supported based on fundamentals of strong coal consumption, well below normal coal inventories and more sustainable natural gas prices.

Internationally, we continue to see strong demand from our Asian customers, which continues to be met by increased supply from projects commissioned several years ago leading to current weak pricing. During the first half of 2014, we saw strong interest in Spring Creek coal in our primary focused markets of South Korea, Japan, and Taiwan as they work to increase generation in the face of growing demand and reduced nuclear generation. These countries are moving ahead with numerous projects to build additional modern coal-fired generation, which will be designed to consume high-grade subbituminous coal, including our benchmark Spring Creek coal.

For 2014, we have contracted to sell 89 million tons from our three owned and operated mines. Of this committed 2014 production, 86 million tons are under fixed-price contracts with a weighted-average price of $13.05 per ton. During the quarter, we fixed prices on approximately 3 million tons of previously contracted indexed coal for 2014 deliveries at an average price of approximately $11.93 per ton.

For 2015, we have currently committed to sell 61 million tons from our three owned and operated mines. Of this committed 2015 production, 48 million tons are under fixed-price contracts with a weighted-average price of $13.22 per ton. During the quarter, we contracted approximately 10 million tons for 2015 delivery at an average price of $12.00 per ton reflecting the mix between 8,400 Btu and 8,800 Btu coal and prevailing market prices.

We are continuing to forecast 2014 export shipments through Westshore of between 4.0 and 4.5 million tons. Demand from our international customers continues to be strong, and we continue to seek to fill all available capacity at Westshore while working to minimize demurrage costs due to rail interruptions delaying shipments. At current international pricing levels, there is little logistics margin available on our export sales. However, we continue to benefit from the margins realized by our Owned and Operated Mines segment and through our hedge positions.

As a result of our lower than expected second quarter shipments, we are reducing our 2014 shipment guidance by one million tons to 85 to 89 million tons. This will still require an expected improvement in rail performance through the end of the year. Due to the strong cost control shown by the operations, we are maintaining our Adjusted EBITDA guidance range of $180 to $210 million for the full year. We are reducing our capital expenditure range by approximately $15 million to a new range of $30 to $40 million.

Marshall commented, “During the quarter, we were able to manage costs well despite lower than expected shipments to produce a solid Adjusted EBITDA result. We have also been able to maintain our strong balance sheet and liquidity position to secure ourselves against the risk of a delayed market improvement. Looking forward, our customers are keen to take their contracted coal to rebuild their stockpiles in time for winter, and our mines are well positioned with stripping and inventory to supply the coal as long as rail performance improves as anticipated. We are optimistic that the second half of the year will improve over the first half and that increased shipments will allow coal burn to normalize leading to improved pricing for future years.”

For earnings history and earnings-related data on Cloud Peak Energy, Inc. (CLD) click here.

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