Alliance Resource Partners’ Q3 Revenue Up, Misses Estimates (ARLP)

Coal mining company Alliance Resource Partners (NASDAQ: ARLP) reported an increase in fiscal 2012 third-quarter revenue compared to the prior-year corresponding quarter. However, net income declined mainly due to the idled Pontiki mine and lowered sales to the metallurgical export markets. Reflecting the effect of Pontiki mine, the company also lowered its full-year fiscal 2012 revenue and income guidance. Alliance Resource also declared a dividend that was 13.6% and 2.1% higher compared to third-quarter of 2011 and second-quarter of 2012, respectively.

The Oklahoma-based company operates 10 underground coal mining complexes in the Illinois Basin, Central Appalachian and Northern Appalachian regions. Apart from mining, Alliance Resource is also involved in the design and installation of underground mine hoists and the selling of mine safety equipment.

Total revenues for the fiscal 2012 third quarter increased to $511.44 million from $487.75 million in the third quarter of 2011. Analysts’ estimates for the third quarter was $554.78 million. Segment wise, fiscal 2012 third-quarter coal revenues increased to $499 million from $473.68 million in the corresponding quarter last year. The company posted record sales volumes of 8.9 million tons of coal for the quarter, an increase of 7% over the third quarter of 2011.

Net income for the reported quarter declined to $60.51 million, or $0.89 per share, from $104.09 million, or $2.16 per share, in the similar quarter of fiscal 2011. The consensus estimate of analysts is $1.75 per share for the quarter that ended September 30.

During the third quarter, the company incurred $24.1 million of losses and charges related to the previously announced idling of the Pontiki mine. Along with that, the coal sold to the metallurgical export markets decreased by approximately $17.8 million.

Alliance Resource’s share price, which was trading at around $72.00 in mid-December, got a boost when a Seeking Alpha report listed it as one of the coal mining companies whose stock is on the verge of a bullish breakout. This was followed by a Motley Fool report that referred the company as a dividend-issuing champ. These two reports took the share price of Alliance Resources to a yearly high of $83.80 per share. However, the reality of a slowing Chinese economy pulled the share price to $70.75 on March 6. Three weeks later, a tougher emission limit proposal from the Environmental Protection Agency for new plants shied away buyers, thereby resulting in a steep fall in the share price to $55.10 by the second week of April. Ironically, it was once again Seeking Alpha and Motley Fool reports that came to the rescue of the stock by indicating that it is undervalued. Alliance Resources, based on these reports, recovered sharply to $63.15 per share in the last week of April 2012. However, the first-quarter results of fiscal 2012 missed estimates and pushed the share price down to $54.88 on June 26.

A June 15 report underlining the rise in the production of coal and indicating a possible rebound stabilized the share price of Alliance Resource at around the $60.00 level. Apart from the fiscal 2012 second-quarter results of Alliance Resource that beat estimates, a 15.2% raise in the quarterly dividend to $1.0625 per share from $0.9225 per share in the corresponding quarter of fiscal 2011 revived the share price to $65.42 on August 22. A “neutral” rating initiation with a $68.00 target price from Global Hunter on August 23 helped the share price of the Alliance Resource to stay at around $65.00.

Today, the share price opened at $63.92 and momentarily went down by a cent. However, the record production volumes, higher revenues and declared dividend kept the momentum. In less than a half hour of trading, the share price touched a peak of $64.65. By noon, the share price was up over 2% at $64.90. The share price continued to stay at those levels until the end of the day.

Considering the impact of idled Pontiki mine, Alliance Resource lowered its full-year 2012 revenue expectations, excluding transportation revenues, in the range of $1.95 billion to $2.05 billion. The company also revised net income guidance for full-year 2012 in the range of $300 million to $315 million. Alliance Resource now expects adjusted EBITDA in the range of $565 million to $580 million for 2012. However, the estimate for the full-year 2012 capital expenditures remains unchanged in the range of $565 million to $610 million.

Alliance Resource expects 2012 production volumes in the range of 34.4 million to 34.9 million tons and sales volumes between 34.8 million and 35.2 million tons. The company also has secured sales commitments for all of its 2012 coal sales volumes and for approximately 37.1 million tons, 29.8 million tons and 22.8 million tons in 2013, 2014 and 2015, respectively. Alliance Resource foresees a dip in the coal inventories to approximately 350,000 tons by the end of the year.

Keeping up the history of increasing the cash dividend for the quarter on a consistent basis, Alliance Resource declared a cash dividend of $1.085 per share, up from $0.955 per share in the third quarter of 2011.

Alliance Resource ended the day at $64.94 per share, up $1.64 or 2.6%.

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Published by Steve Hackney

Steve Hackney is a corporate finance professional with over 14 years of experience in cash management and investing. He earned a Bachelor of Science in Finance from Florida State University and holds a Certified Treasury Professional certification. Steve lives in Orlando, Florida with his family.