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Key investor takeaways from Walter Energy's 1Q14 earnings

Key investor takeaways from Walter Energy's 1Q14 earnings (Part 1 of 8)

An investor’s key guide to Walter Energy’s position and outlook

Walter Energy Inc.

Among companies such as Peabody Energy (BTU), Teck Resources Ltd. (TCK), and Alpha Natural Resources Inc. (ANR), Walter Energy Inc. (WLT) is the closest publicly traded company an investor can get to a pure-play metallurgical coal miner. Metallurgical coal is mined from underground or surface mines and are transported using rail, ships, or trucks to steel manufacturers.

Walter Energy Mines and ShipmentsEnlarge Graph

Revenue business

To a lesser extent, Walter Energy also produces some thermal coal—the type of coal that’s used for electricity. But at just 1,744 thousand metric tonnes in 2013, this production pales in comparison to company’s 10,414 thousand metric tonnes of metallurgical coal. Note that metallurgical coal sells at higher prices than thermal coal (steam coal). Of the 10,414 thousand metric tonnes sold in 2013, ~70% was produced from U.S. mines, with the remainder coming from operations in Canada and the United Kingdom. More than 65% of the company’s revenue was from Europe and Asia.

Earnings miss

For the first quarter of 2014, Walter Energy reported adjusted earnings per share of -$1.50 a share, missing analyst consensus of -$1.21 a share. On the day of the announcement, May 1, 2014, the stock fell 4.03% by the end of the market trading hour. Because companies trade based on future earnings, earnings are often adjusted to exclude temporary items that aren’t expected to occur regularly. It’s also a more apples-to-apples comparison against analysts’ estimates.

Review and outlook

Walter Energy represents less than a percent of the Market Vectors Coal ETF (KOL), but industry fundamentals largely apply to other metallurgical coal miners that make up larger shares of the ETF. As commodities, coal companies are primarily driven by industry fundamentals rather than company-specific factors.

However, we’ll also take a look at Walter Energy’s key company-specific factors that we believe investors should watch out for. This series will cover Walter Energy’s key performance indicators for the first quarter and what might be in store for the company in the future.

The Realist Discussions

  • miner

    we are doomed

    • yannis

      Nobody is doomed. Bankers want you do believe that. They are in the mission to drive investors out of coal stocks. WLT is in a bad position and they are hitting it hard to scare investors out of all coal stocks. Just stay in, don’t sell. Blackrock and others are loosing over 60% of their investment since January 1 2014.