Natural Resource Partners L.P. (NRP) announced its fourth-quarter 2010 operating earnings of 39 cents per unit, surpassing the Zacks Consensus Estimate by a nickel. The results of the partnership were in line with the year-ago figure.
Natural Resources’ 2010 operating earnings were $1.54 per unit compared with $1.28 per unit reported in 2009. The results of the partnership were higher than the Zacks Consensus Estimate of $1.47 per unit provided by 8 covering analysts.
Revenue
Total revenue at Natural Resource Partners at the end of the fourth quarter was $77.0 million versus $65.9 million in the year-ago period, reflecting a growth of 17.7%. The favorable outcome was driven by positive contribution from both coal royalty revenue and revenues other than coal royalties.
Reported quarter revenue was in line with the Zacks Consensus Estimate.
Natural Resource’s total revenue for 2010 was $301.4 million, up 17.7% from $256.1 million reported in the prior fiscal year. The reasons for growth in the fiscal year are the same that drove the quarter.
In particular, revenues other than coal royalties smartly rose 34% year over year as minimums recognized as revenues increased $12.9 million mainly due to a non-recoupable minimum received in 2010 with respect to the Hillsboro property in Illinois.
Fiscal year 2010 revenue matched the Zacks Consensus expectation.
Quarterly Highlights
During the quarter the partnership experienced a 7.2% year-over-year increase in coal production. The average royalty revenue per ton during the reported quarter increased by 39 cents over the year-earlier period. Both these factors contributed to the revenue spike.
The total operating costs and expenses during the quarter increased by 10.2% year over year due to higher general and administrative expenses, as well as depreciation, depletion and amortization, partially offset by lower coal royalty and override payments. However, the total operating cost, as a percentage of revenue, decreased by 215 basis year over year.
Annual Highlights
During 2010, the partnership clocked a 17.7% year-over-year revenue growth but also experienced a 3.7% rise in total operating cost and expenses. Costs escalated due to higher general and administrative expenses and transportation costs.
The total operating cost when considered as a percentage of revenue decreased by 492 basis points over the prior year. This decline benefited the operating results of the partnership and the operating income zoomed 27.3% year over year.
The partnership also saw a 3.8% increase in interest expenses, owing to the higher debt levels compared with last year.
Financials
Cash provided by operating activities during the year was $258.7 million versus $210.7 million in 2009.
Cash and cash equivalents as of December 31, 2010 was $95.5 million versus $82.6 million as of December 31, 2009.
Long-term debt of the partnership as of December 31, 2010, was $661 million versus $626.6 million as of December 31, 2009.
A Quick Look into 2011
January 2011 saw the partnership providing a broad outlook for the ensuing year. The partnership expects total revenue in the range of $300 million to $350 million for 2011 of which coal royalty revenue would roughly come in a band of $235 million to $270 million.
The distributable cash flow in 2011 is expected in the range of $215–$255 million and earnings per unit between $1.35 and $1.70.
At the Peer
Peabody Energy Corporation (BTU), which competes with Natural Resource Partners, L.P., announced its operating earnings for the fourth quarter 2010 of 85 cents per share versus 43 cents per share in the year-ago quarter. Earnings at Peabody Energy surpassed the Zacks Consensus estimates by 15 cents.
The 2010 operating earnings of the company were $3.05 per share compared with $1.92 per share reported in 2009. Full year earnings also exceeded the Zacks Consensus estimates of $2.91.
Our View
During 2010, metallurgical coal accounted for 32% of the partnership’s production and 38% of its coal royalty revenues compared with 26% of production and 33% of coal royalty revenues in 2009. The demand for steam coal and metallurgical coal is steadily rising due to the economic recovery in the United States and other countries around the globe. The company only stands to gain from a reinvigorated demand for this source of fossil fuel.
During the year the partnership made acquisitions worth $179 million. Most of the investments were centered on two projects – the Deer Run mine in the Illinois Basin and a joint venture with International Paper (IP) that constituted the mineral rights on more than 7 million acres. These initiatives taken by the partnership will aid in long-term revenue generation in the long term.
Natural Resource Partners currently retains a Zacks #3 Rank (short-term Hold rating).
Based in Houston, Texas, Natural Resource Partners principally engages in the business of owning and managing mineral reserve properties. The partnership mainly owns coal, aggregate and oil and gas reserves across the United States.
PEABODY ENERGY (BTU): Free Stock Analysis Report
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