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Westmoreland Coal Missed 3Q17 Earnings Estimates

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Segmental adjusted EBITDA

Westmoreland Coal’s Coal-U.S. segment reported adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $34.3 million in 3Q17 compared to $38.0 million in 3Q16 and $23.7 million in 2Q17.

The Coal-WMLP (Westmoreland Resource Partners) segment reported a fall in adjusted EBITDA, from $22.7 million in 3Q16 to $21.2 million in 3Q17.

The Coal-Canada segment reported $13.5 million in 3Q17 adjusted EBITDA compared to $18.6 million for the same period in 2016. The company’s Power segment also reported a significant fall in adjusted EBITDA, from $0.51 million in 3Q16 to $0.44 million in 3Q17.

Westmoreland Coal’s overall adjusted EBITDA

For 3Q17, Westmoreland Coal reported a 14.9% fall in adjusted EBITDA on a YOY (year-over-year) basis. It came in at $62.6 million compared to $73.5 million in 3Q16. Its adjusted EBITDA missed analysts’ estimate of $63.8 million.

Why the fall?

The YOY fall was primarily driven by the termination of the Jewett coal supply contract in 2016 and the collection of loan and lease financing income in 1Q17 from the Capital Power contract for the Coal-Canada segment. Lower adjusted EBITDA implies lower income from the company’s ongoing operations.

Services at the Jewett mine were switched to strong-margin reclamation work, which could help Westmoreland generate cash flow even after the mine closure. A contract in the Coal-U.S. segment was extended at lower short-term EBITDA, thus adding more years to the contract.

Moving forward, the winter heating demand could be a driver for Westmoreland Coal’s strong operational performance and its coal (KOL) mining peers Alliance Resource Partner (ARLP), Cloud Peak Energy (CLD), and Alpha Natural Resources (ANRZQ). Until now, however, temperatures have been warmer than expected.

In the next part of this series, we’ll look at Westmoreland Coal’s leverage and liquidity position.

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