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Why Did Westmoreland Coal Miss Adjusted EBITDA Estimates in 2015?

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Westmoreland Coal’s cost performance

Westmoreland Coal (WLB) reported an ~11% increase in average cost of coal sold per ton compared to fiscal 2014. The average cost per ton of coal sold came in at $21.50 compared to $19.30 during fiscal 2014.

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Adjusted EBITDA

Westmoreland Coal’s adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) for fiscal 2015 came in at $216.66 million against analysts’ expectations of $219.50 million. Its EBITDA value is up by nearly 23.5% on a year-over-year basis from $175.35 million in fiscal 2014.

The marginal deviation from analysts’ expectations is primarily due to lower-than-expected revenues from its Coal Mining segment and an increase in the average cost of coal sold during fiscal 2015.

Among the company’s coal mining operation segments, Coal – Canada segment witnessed the highest EBITDA margin of 25.2%, followed by the Coal – WMLP segment and the Coal – US segment. Higher EBITDA margins imply higher profits from ongoing operations.

Net reported loss widened in fiscal 2015

Westmoreland Coal (WLB) reported a consolidated net loss of $203.31 million against a $173.11 million loss in fiscal 2014. According to company filings, the increase in net loss is mainly due to a $133.10 million impairment that was incurred in the Power segment due to depressed power prices. Also, an increase in interest expenses led to a higher-than-estimated loss of $96.05 million.

After adjusting for non-cash impairment losses the net adjusted loss for fiscal 2015 comes to about $100 million.

Unlike its peers Arch Coal (ACIIQ), Alpha Natural Resources (ANRZQ), and Peabody Energy (BTU), Westmoreland Coal’s unique mine mouth business model, accompanied by long-term coal contracts, helps the company to remain competitive and shields the company from coal pricing volatility. According to company filings, the contracted position of estimated coal production for fiscal 2016 stands at 97%.

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