Premier coal producer and exporter Walter Energy (WLT) slashed its fiscal 2010 coking coal sales guidance to 7.2 – 7.5 million tons, from the previous guidance range of 7.7 – 7.9 million tons.  This lower guidance results from poorer expectations of coking coal production volumes in 2010.
Walter expects coking coal production volumes to total about 1.8 million tons in the third quarter of 2010 at nearly $60 per ton. The company is, however, maintaining its coking coal sales forecast of 1.8 to 2.0 million tons for the quarter.
In addition to this, the company expects the higher cost per ton to result in lower operating income margins in the third quarter, with operating income coming in at $107 – $110 per ton, down from the previous range of $110 – $115 per ton.
Walter’s management stated that the company has been experiencing difficult mining conditions from the time it moved to a new longwall panel at Mine No. 4. This has caused production in the longwall to decline significantly, leading to a shortfall of roughly 200,000 tons through August. Though Walter is hopeful of an improvement in production levels based on section development work further in the panel, it does not expect production volumes to rise to a level, which would be enough to maintain its previous volumes guidance.
Furthermore, Walter recently witnessed improved miner production at the second longwall panel of Mine No. 7 East expansion compared to the advance rates observed in the second quarter of 2010. Based on the continuity of these rates Walter expects production in the new longwall panel to start in December earlier than expected, increasing coking coal inventory available for sale in early 2011.
Walter’s operating earnings for the second quarter of 2010 came in at $2.16 per share, above the Zacks Consensus Estimate of $1.94 and the year-ago earnings of 21 cents per share. Going forward, we expect the operating earnings for fiscal 2010 and 2011 to be $8.95 and $10.73, respectively.
Headquartered in Tampa, Florida, Walter Energy is one of the leading U.S. producers and exporters of premium metallurgical coal to the global steel industry in the United States.
We currently have a Zacks #3 Rank (Hold) and a long-term Neutral recommendation on the stock.
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