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Inside Westmoreland Coal’s Margin Estimates

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Westmoreland Coal’s EBITDA estimates

Westmoreland Coal (WLB) reported total adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of about $35 million in 2Q15. Its EBITDA margin was 9.9%. For 2Q16, analysts expect Westmoreland Coal to report EBITDA of $62.1 million and an EBITDA margin of 17.6%. Higher EBITDA implies higher income from the company’s ongoing operations.

The YoY (year-over-year) increase is mainly due to the company’s San Juan acquisition on January 31, 2016. Moving ahead, analysts expect the company’s EBITDA to remain flat. This is consistent with Westmoreland Coal’s business model.

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Operating profit

Westmoreland Coal reported a consolidated operating loss of $6.8 million for 2Q15. Analysts expect Westmoreland Coal to report an operating profit of about $13.8 million for 2Q16. An increase in YoY revenues accompanied by an increase in margins could have a positive impact on the operating profit, according to analysts’ expectations. For 2Q16, analysts expect Westmoreland Coal to report its EBITDA margin as 17.6%—compared to 9.9% in 2Q15.

Net income

Westmoreland Coal reported a consolidated adjusted net loss of $33.3 million for 2Q15. Analysts expect the company to report adjusted net loss of about $7.5 million for 2Q16, largely due to higher revenues accompanied by higher margins.

The continued downturn in the commodity market can have a significant impact on future margins of Westmoreland Coal (KOL) and its peers Cloud Peak Energy (CLD), Arch Coal (ACIIQ), Alpha Natural Resources (ANRZQ), and Peabody Energy (BTUUQ). However, relatively manageable debt levels and interest costs could help Westmoreland Coal and Cloud Peak Energy stand out among their peer group during tough times.

In the final part of our series, we’ll take a look at the factors that investors should look for in Westmoreland Coal’s 2Q16 earning results.

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