For Alpha Natural Resources (NYSE:ANR), the fourth quarter of 2011 was marked with declining coal demand as a result of slowing economic activity, a market shift for low-priced natural gas, and the recent U.S. environmental regulations that discourage the use of coal. The company reported a net loss of $733 million for Q4 on account of a $745 million asset write-down. Alpha’s full year bottom-line was also impacted by the acquisition charges and other litigation costs related to the acquisition of Massey Energy in June 2011.
Alpha Natural Resources is a leading supplier and exporter of metallurgical coal, which is used in the steel-making industry and thermal coal which in used in electricity generation. It competes with players like CONSOL Energy (NYSE:CNX) and Peabody Energy (NYSE:BTU).
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- Alpha Natural Resources’ Earnings Review: Weak Coal Demand And Pricing Weighs On Q4 Results
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Key Factors That Impacted Q4 Results
While the fourth quarter revenue jumped to $2.07 billion from $993.1 million a year ago because of consolidation with the acquisition of Massey Energy, the company also made a loss of $733 million. The loss is largely attributable to a $745 million asset write down in its Eastern coal operations. Other factors contributing to the dismal results are constrained prices and lower demand for thermal coal in the U.S., due to competition from cheap natural gas and uncertainty ahead of the implementation of federal air-pollution rules.
With the market preference shifting from coal to cheaper and environmentally friendly natural gas, prices and volumes of coal are expected to decline.
The company revised its 2012 coal shipment guidance, in which it lowered its metallurgical coal shipment estimates between 20-25 million tons from its November estimate of 23.5-26.5 million tons. It also cut its projection for eastern steam coal shipments and western steam coal shipments to 42-48 million tons and 45.0-51.0 million tons from its prior estimate of 46-52 million tons and 49.0-53.0 million tons, respectively.
Alpha’s CEO, Kevin Crutchfield, said the company may shut or/and sell some thermal coal operations, although he did note that it’s a difficult period to sell thermal assets with prices currently under pressure from competing natural gas.
The company also lowered its capital expenditure guidance for 2012 to fall within the range of $550-$750 million, compared to prior guidance of $650-$850 million.
Our current price estimate for Alpha Natural Resources stock stands at $32.68, which is about 60% above the current market price. We are in the process of revisiting our forecasts to incorporate the Q4 results and 2012 outlook.