Massey Energy Co. (MEE), the largest coal company in Central Appalachia, Virginia, announced first quarter 2010 earnings of 39 cents per share, above the Zacks Consensus Estimate of 27 cents but below last year’s earnings of 51 cents.
 
Operating Results
Revenues in the reported quarter plunged 16% year over year to $571.8 million, reflecting lower utility coal shipments as electric utilities continued the draw-down from previously high stockpile levels. In addition, weather-related production issues, weather-related power outages and disruption of rail and ocean transport significantly impacted Massey’s operations during the first two months of the quarter.
 
Produced tons sold in the quarter totaled 8.5 million compared with 10.8 million in the year-ago quarter. In the quarter, metallurgical and industrial coal shipments were up 33% and 29%, respectively, while utility coal shipments slumped 37%.
 
Average coal realization for the quarter was $67.38 per ton compared with $63.03 per ton in the year-ago quarter. The improvement was driven by realized price increases for utility and industrial coal and an increase in the proportional mix of metallurgical coal sold during the quarter.
 
Average cash cost per ton for the reported quarter was $55.38 compared with $48.27 in the year-ago quarter. The increase was due to weather-related production issues, a higher percentage of underground versus surface mining production, higher labor costs, higher sales-related costs, and higher fixed cost absorption the total volume produced.
 
Financials
Massey Energy ended the quarter with $1.2 billion in cash and equivalents compared with $665.8 million at year-end fiscal 2009. The company had $98.6 million available under its asset-based revolving credit facility for a total liquidity of $1.3 billion as of March 31, 2010. Total capital expenditures in the quarter were $56.1 million compared with $103.7 million in the year-ago quarter.
 
Massey Energy had total debt of $1.3 billion as of March 31, 2010. During the quarter Massey retired the remaining $21.9 million of its 6.625% senior notes due November 2010. Massey’s total debt-to-capitalization ratio was 42.4% as of March 31, 2010 compared with 51.2% as of December 31, 2009.
 
Subsequent to the end of the first quarter, on April 19, 2010, Massey completed its acquisition of Cumberland. The final purchase price included $640 million in cash, subject to working capital adjustments, and approximately 6.5 million shares of Massey common stock.
 
Guidance


Massey Energy expects fiscal 2010 coal shipments in the range of 35 to 37 million tons, with average coal realization between $70.50 and $72.00 per ton. These estimates exclude Massey’s second quarter integration of the Cumberland operations.
 
Average cash cost per ton for the full year 2010 is expected to be in the range of $54.00 to $57.00, excluding charges related to the Upper Big Branch mine tragedy. Other income is expected to be between $70.0 and $120.0 million. Capital expenditure for 2010 is expected to be approximately $300 million.
 
Further, the company indicated that it expects its second quarter results to be impacted by charges related to the tragic accident at the Upper Big Branch mine. The company estimates the range of loss to be $80 to $150 million for charges related to benefits being provided to the families of the fallen miners, costs associated with the rescue and recovery efforts, insurance deductibles, as well as possible legal and other contingencies.
 
Massey Energy expects fiscal 2011 coal shipments in the range of 37 to 42 million tons with average coal realization between $73 and $82 per ton. The company has commitments to sell 34.1 million tons of coal in 2011. Of these, 22.7 million tons would be sold an approximately $68.50 per ton. This includes 2.2 million tons of metallurgical coal. Average cash cost for fiscal 2011 is expected in the range of $50 to $56 per ton. The company expects capital expenditures in 2011 to be in the $200 to $300 million range.
 
For fiscal 2012, Massey has commitments for coal shipments of 17.7 million tons. Of these, 8.7 million tons would be sold at approximately $70 per ton, including approximately 900,000 tons of metallurgical coal.
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