Drop in prices offsets cost savings
While Walter Energy (WLT) has been able to reduce costs, the cost savings have not been able to compensate for the drop in revenues. In other words, the drop in revenue has been more severe than the benefit from cost saving.
Moreover, while the company has reduced its cost of production, it has produced fewer tons. Thus, the fixed cost of production has been divided by fewer tons, leading to an increase in cost of production from US operations in 3Q14, on a per ton basis.
Earnings before interest, taxes, depreciation, and amortization
The company reported EBITDA (earnings before interest, taxes, depreciation, and amortization) of $8.4 million in 3Q14, compared to EBITDA of $23.6 million in 3Q13. The adjusted EBITDA came in even lower at $168,000 in 3Q14 compared to $21.3 million in 3Q13. Adjusted EBITDA refers to EBITDA adjusted for restructuring and asset impairment charges, gain/loss on extinguishment of debt, take-or-pay charges, and forex/derivative gains/losses.
The company made gains on $3.4 million on extinguishment of debt. Moreover, the company recorded a benefit of $2.4 million towards reversal of previously recorded asset impairment charges. These two adjustments were the major factors behind the difference in EBITDA and adjusted EBITDA as they were included in EBITDA, but excluded from the adjustments.
While EBITDA came in substantially lower, the company managed to post marginally lower net loss at $98.9 million in 3Q14 compared to $100.7 million. Depreciation and amortization expenses came down to $58.4 million in 3Q14 compared to $83.0 million in 3Q13, as the company streamlined its asset base.
A lot of American coal producers, including Arch Coal (ACI), Alpha Natural Resources (ANR), and Peabody Energy (BTU) are streamlining asset base to survive the downturn. On a per share basis, the losses came in at $1.48 compared to $1.61 in 3Q13.
We’ll examine cash flows and liquidity in the next part of the series.