CONSOL Energy Results Looks Better Than They Are

For the full year, the company posted diluted EPS of $2.87 on revenues of $3.02 billion, compared with 2012 revenues of $3.12 billion and EPS of $1.70. The consensus estimate called for 2013 EPS of $0.03 on revenues of $4.88 billion.

CONSOL sold five of its Appalachian mines for $3.5 billion (about $1.1 billion in cash) in late October.

Natural gas production rose 16% sequentially, but margins fell from $1.03 per thousand cubic feet equivalent of gas in the fourth quarter of 2012 to $0.71 this year. The decline was due to realized prices falling by $0.18 and costs rising by $0.14.

Margins also fell in the company’s coal business, with low-volatility (thermal) coal margins falling by $5 a ton and high-volatility (metallurgical) coal margins dropping by more than $9 a ton.

The company’s CEO said:

Despite overachieving on many items we could control, CONSOL Energy saw 2013 fourth quarter unit margin contraction in both its gas and coal divisions. Profitability was especially hampered by lower realized prices for the company’s premium low-vol coal production from Buchanan Mine. Looking to 2014, CONSOL is poised to increase its gas production by 30% and its coal production by 5 million tons, on an annual basis, when the BMX Mine in Southwestern Pennsylvania opens late in the first quarter. Higher natural gas and coal production, coupled with our stated $65 million reduction in annual administrative costs, should aid profitability, even in the face of continued weak coal pricing.

Looking ahead, CONSOL forecast natural gas production of 215 billion to 235 billion cubic feet equivalent for 2014 and an increase of 30% beyond that in each of the following two years. The company also expects to hedge about half its 2014 production at an average hedge price of $4.61 per thousand cubic feet.

Coal sales in 2014 are forecast at 30.1 million to 32.1 million tons, rising to 34 million tons in 2015. Firm tonnage sold for 2014 totals 23.8 million tons at an average price of $65.35 a ton.

Shares were inactive in Friday premarket trading, at $37.90 in a 52-week range of $26.25 to $39.57. Prior to this release, Thomson/Reuters had a consensus price target of around $45.00 on the company’s shares.