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Analyzing Westmoreland Coal’s Revenue Estimates

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Westmoreland Coal’s revenue estimates

Westmoreland Coal (WLB) reported about $349 million in consolidated revenues for 2Q15. Analysts estimate that the company will report $353 million in 2Q16 revenues—about a 1% increase on a YoY (year-over-year) basis. However, estimated revenues are expected to remain flat on a quarter-over-quarter basis.

Westmoreland Coal reported a consistent increase in its second quarter revenues over the past five years. It’s expected to maintain the trend, according to analysts’ estimates. Most of the thermal coal produced in the US is consumed in power generation. Therefore, it’s reasonable to compare YoY revenue data to account for seasonal variations rather than doing a quarter-over-quarter comparison.

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Coal production

According to the EIA’s (U.S. Energy Information Administration) weekly coal production data, coal production from all of the major US coal-producing (KOL) regions increased in 2Q16.

The consistent increase in weekly coal production could imply high volumes for Westmoreland Coal and its peers Cloud Peak Energy (CLD), Arch Coal (ACIIQ), Alliance Resource Partners (ARLP), and Peabody Energy (BTUUQ).

Coal prices

According to the EIA’s weekly coal (KOL) spot price data, coal spot prices fell in 2Q16—compared to 1Q16. A steady decrease in weekly coal commodity spot prices will also have a negative impact on revenues from supply contracts entered into during this period. Lower spot prices will lead to a lower price realization on spot sales. Although the majority of Westmoreland Coal’s production is sold under long-term contracts, the company is required to change prices periodically as a result of adjustment provisions for cost and market variances.

According to the EIA’s average weekly coal spot prices, the Northern Appalachian region’s coal prices fell the most in 2Q16. Coal spot prices for the Central Appalachian region decreased from their peak value of $43.63 per short ton in 1Q16 to a low of $39.5 in 2Q16. The Northern Appalachian region’s coal prices declined from their peak value of $48.6 in 1Q16 to a low of $42.1 in 2Q16.

Analysts’ flat revenue estimates are supported by a consistent increase in coal production accompanied by a decrease in coal spot prices in 2Q16.

In the next part of our series, we’ll take a close look at Westmoreland Coal’s 2Q16 margin estimates.

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