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How Cloud Peak Energy Beat Adjusted EBITDA Estimates in 4Q15

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Cloud Peak Energy’s cash margins

Cash margin is the difference between the realized price per ton sold and the average cost of product sold per ton. It represents the cash generated per ton of product sold.

Cloud Peak Energy reported a marginal increase in cash margins at $2.98 per ton sold in 2015 compared to $2.82 per ton sold in 2014. On the other hand, cash margins decreased from $3.54 per ton sold in 4Q14 to $3.18 per ton sold in 4Q15. As discussed in the previous part of this series, this difference is primarily due to the difference in percentage variation of overall coal shipments.

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Adjusted EBITDA

Cloud Peak Energy’s adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) for 4Q15 came in at $34.7 million against analysts’ expectations of $29.6 million. The company’s EBITDA value is down by nearly 51.5% on a year-over-year basis from $71.6 million in 4Q14. Deviation from analysts’ expectations is primarily due to adjustments made for deferred tax valuation allowance and non-cash impairments of $58.2 million related to Cloud Peak’s port access rights and its investment in the Gateway Pacific Terminal. Adjustments in its financial derivative instruments also led to higher adjusted EBITDA.

Net adjusted income

Cloud Peak Energy’s (CLD) net adjusted income came in at $22.5 million for 4Q15 against analysts’ expectations of -$9.4 million. The increase in adjusted income is mainly due to adjustments made for non-cash expenditures, as mentioned above.

The continued downturn in the commodity market could have a significant impact on the future margins of Cloud Peak Energy and its peers Arch Coal (ACIIQ), Alpha Natural Resources (ANRZQ), and Peabody Energy (BTU).

Low leveraged and pure-play PRB coal (KOL) producers like Cloud Peak Energy could stand out in such a scenario. We’ll look at Cloud Peak Energy’s liquidity position in the next part of this series.

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