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Walter Energy (NYSE: WLT) (TSX: WLT), the world’s leading, publicly traded “pure play” producer of metallurgical coal for the global steel industry, today announced earnings per diluted share of $1.53 and net income of $81.8 million for the quarter ended March 31, 2011, compared to earnings per diluted share of $0.77 and net income of $41.6 million in the first quarter 2010. Results for the period exclude results from Western Coal, which the Company acquired on April 1, 2011.
“We generated strong year-over-year growth in revenues and income driven primarily by the third highest coking coal pricing we have ever achieved,” said Walter Energy Chief Executive Officer Keith Calder. “Now that our acquisition of Western Coal is complete, we can turn our attention to delivering on our promises, executing integration activities and framing future growth opportunities.”
First Quarter 2011 Financial Results
Revenues for the first quarter 2011 totaled $408.7 million compared to $312.0 million in the prior-year period. Operating income totaled $119.8 million for the quarter, compared to $71.3 million in the prior-year period. Revenue and operating income improvements were primarily due to strong coking coal pricing from the Company’s underground mining segment. Operating income improvements were partially offset by higher costs and lower sales volumes from the underground mining segment.
EBITDA for the first quarter 2011 was $148.1 million, compared to $93.5 million in the first quarter 2010.
Results for the quarter also include $9.9 million in costs associated with the acquisition of Western Coal.
Underground Mining
The underground mining segment reported revenues of $343.2 million in the first quarter 2011, compared to $240.3 million in the prior-year period. Operating income was $123.9 million, nearly double the operating income in the same period last year. Revenues and operating income were higher primarily due to significantly higher average coking coal contract pricing, partially offset by lower coal sales volumes. Operating income was also negatively impacted by higher production costs, royalties and freight costs.
Coking coal sales totaled 1.7 million tons in the first quarter, down 6.4 percent compared to the prior-year period due to lower production volumes despite strong customer demand. The average selling price in the quarter was $193.51 per short ton FOB Port, a 52.3 percent increase over the average selling price of $127.05 per ton for the same period last year.
The Company produced 1.6 million tons of coking coal in the quarter, compared to 1.7 million tons in the first quarter 2010. Lower production was primarily the result of challenging mining conditions, which persisted longer than expected in the first quarter 2011. Production costs for the quarter averaged $69.20 per ton compared to $58.19 in the prior-year period. Cost per ton increased due to the effect of lower volumes as well as planned continuous miner development associated with the preparation of future longwall panels.
The Company’s natural gas business sold 3.4 billion cubic feet of gas at an average price of $4.09 per thousand cubic feet in the first quarter 2011 compared to 1.4 billion cubic feet at an average price of $5.49 per thousand cubic feet in the prior-year period. Increased production and sales for the quarter resulted from the May 2010 acquisition of the Walter Black Warrior Basin natural gas business.
Surface Mining
The surface mining segment reported revenues of $40.8 million for the first quarter 2011, compared to $31.3 million in the prior-year period on increased sales volumes and pricing. Operating income for the surface mining segment was $6.7 million, compared to $7.3 million in the prior-year period. Operating income was lower as higher revenues were more than offset by increases in production costs, primarily due to higher stripping ratios and diesel prices.
The surface mining segment reported coal sales of 426,000 tons during the first quarter, up 13.6 percent compared to the prior-year period primarily due to incremental sales volumes from the Reid School metallurgical coal mine. Production was 369,000 tons, up 7.0 percent versus the first quarter last year driven by the incremental Reid School mine tonnage.
Walter Coke
Walter Coke reported revenues of $47.3 million in the first quarter 2011, compared to $51.2 million in the prior-year period. Revenues were lower as a result of lower sales volumes, which more than offset increased pricing. The segment generated $8.0 million in operating income in the quarter, compared to $7.6 million in the prior-year period. Operating income improvements were the result of strong pricing and improved plant performance.
The segment sold 104,000 tons of metallurgical coke in the first quarter 2011 at an average price of $409.85 per ton compared to 139,000 tons sold in the prior-year period at an average price of $327.37 per ton. Price increases were primarily attributable to improved demand in the domestic automotive and steel markets.
2011 Full-Year Business Outlook
As previously announced, Walter Energy acquired Western Coal on April 1, 2011. Sales volume expectations for both legacy Walter Energy and legacy Western Coal are as follows:
The Company expects full year metallurgical coal sales from the Walter Energy Alabama underground operations of 7.5 million to 8.0 million short tons. In addition, the Walter Energy Alabama surface operations expect to sell between 1.4 million and 1.6 million short tons of thermal coal for the full year.
From the legacy Western Coal operations, the Company expects metallurgical coal sales of between 4.9 million and 5.3 million metric tons for the period of April 1, 2011 to Dec. 31, 2011. The Company expects thermal coal sales of 1.0 million to 1.2 million metric tons for the same period from these operations.
Capital Expenditures
Capital expenditures for the full year 2011 are expected to total between $500 million and $540 million and includes significant expansion projects at the Canadian operations. Estimates for the previous Western Coal operations are for the period covering April 1, 2011 through Dec. 31, 2011.
Liquidity
Simultaneous with the closing of the acquisition of Western Coal, the Company entered into a new $2,750 million credit facility. As of mid-April 2011, the Company had available liquidity of approximately $500 million, consisting of cash, cash equivalents and marketable securities of $169 million, plus $331 million available under the Company’s new $375 million revolver. Total long-term debt, including the current portion of long-term debt as of mid-April 2011, was approximately $2,290 million.
About Walter Energy
Walter Energy is the world’s leading, publicly traded “pure play” metallurgical coal producer for the global steel industry. The Company also produces steam coal and industrial coal, anthracite, metallurgical coke and coal bed methane gas. The Company has strategic access to high-growth steel markets in Asia, South America and Europe. Walter Energy had pro forma 2010 revenues of approximately $2.3 billion and employs approximately 4,000 employees and contractors with operations in the United States, Canada and United Kingdom. For more information about Walter Energy, please visit the company website at www.walterenergy.com.
