July 29, 2008
Tulsa-Based Coal Producer Stock Rises With Dividend Hike, Revenue Growth
By Kirby Lee Davis
An abundance of year-ago gains cut Alliance Resource Partners' second-quarter profits 20.5 percent, missing Wall Street estimates.
But with adjusted earnings up 14.4 percent and both sales prices and volumes rising, units for the Tulsa-based high-sulfur coal provider rose 2.1 percent Monday. Alliance also raised its dividend 12.8 percent and held to its 2008 guidance.
The company now targets 6- to 8-percent quarterly distribution increases through 2010, said Alliance President and Chief Executive Joseph W. Craft III.
"Management is highly confident in their ability to produce enough coal and price it at a high enough price in their contracts to overcome any cost pressures they might feel," said James Carnett, senior portfolio manager with Fredric E. Russell Investment Management Co. of Tulsa.
"If that's the case, then this becomes a very attractive investment vehicle," he said.
For the three months ended June 30, Alliance posted net income of $36.69 million, or 67 cents per diluted unit, down from $46.3 million, or 80 cents, the prior year.
Analysts surveyed by Zacks Investment Research had predicted 71 cents, while Thomson Financial had pegged 72 cents.
Factoring out non-recurring benefits, Alliance posted earnings before interest, taxes, depreciation and other factors of $65.4 million, down 7 percent from $70.5 million the prior year. Adjusting for non-recurring synfuel benefits, Alliance finished the latest quarter with EBITDA up 14.4 percent.
Revenue for the quarter rose 4.8 percent to $276.2 million from $263.3 million. Total average coal sales prices rose 2.3 percent over the quarter, even as sales volumes increased 5.5 percent to 6.6 million tons, led by higher Illinois Basin coal sales.
For the six months ended June 30, ARLP net income paralleled the second-quarter trends, falling 12.9 percent to $79.9 million, or $1.43 per diluted unit, down from $91.8 million, or $1.59, the prior year. EBITDA fell 3.1 percent to $134.2 million, only to rise 11.8 percent after adjustment for loss of synfuel benefits.
Record tons produced and sold led to a 7.6-percent increase in revenue to a record $559.8 million for the first six months of the year from $520.38 million. Coal sales volumes rose 9.3 percent to 13.6 million tons.
The Alliance board raised its quarterly distribution Monday to 66 cents per unit, payable Aug. 14 to unitholders of record Aug. 7.
Alliance foresees 2008 coal production in a range of 26.4 to 27.3 million tons, with essentially all committed to contract pricing. This supports 2008 coal revenues of $1.03 billion to $1.1 billion.
The limited partnership also confirmed its 2008 guidance ranges for EBITDA, $250 million to $280 million, and net income, $130 million to $160 million.
Based on 2008 levels, Alliance said it expects total average price realizations per sales ton will jump by 25 percent or more in 2009, and 40 percent or more in 2010.
"Global long-term supply/demand fundamentals for coal remain positive and continue to support strong domestic coal markets, particularly for the markets served by ARLP's high-sulfur coal," said Craft.
After rising as high as $47 a unit, the Nasdaq listing closed Monday up 93 cents to $45.31. Trading volume rose 34 percent over the daily average to 197,613 units.
Carnett had only one reservation - the additional debt Alliance took on to support its River View mine development.
That new mine project, acquired with its purchase of River View Coal LLC, promises 117.1 million tons of high-sulfur coal in the Kentucky No. 7, No. 9 and No. 11 coal seams. Alliance intends to develop an underground mining complex with up to eight continuous mining units capable of producing up to 6.4 million tons of coal a year.
In April, Alliance estimated capital expenditures with this project could hit $250 million or more through 2010, while raising employment there to 600. The Tulsa company expects about 800,000 tons of River View coal sales in the fourth quarter, rising to 5.2 million tons in 2010 and 6.4 million in 2011.
"They went from $136 million to $479 million in long-term debt - which is a pretty healthy increase," said Carnett. "They must feel the additional production will more than be enough to service that debt and pay out further distributions. Management sounded highly confident in their ability to do this."
Alliance Holdings units soar with distribution hike
Units for Alliance Holdings GP jumped 9.9 percent Monday after the general partner of Alliance Resource Partners boosted its quarterly cash distribution 22.6 percent to 35 cents per unit, payable Aug. 19 to unitholders of record Aug. 12.
Alliance Holdings financials followed trends of its primary subsidiary. The Tulsa-based holding company owns Alliance Resource Management GP, the managing general partner of Alliance Resource Partners. It holds a 1.98-percent general partner interest in ARLP and the incentive distribution rights, as well as 15.5 million common units.
"Assuming ARLP can meet its goal of increasing cash distributions by 6 percent to 8 percent each quarter through 2010, AHGP unitholders could see quarterly distributions more than double during the same period," said President and Chief Executive Joseph W. Craft III, who leads both firms.
Alliance Holdings second-quarter net income fell 8.8 percent to $21.7 million, or 36 cents per unit, from $23.8 million, or 40 cents, the prior year. But that beat analyst expectations in surveys by Zacks Investment Research and Thomson Research, which had foreseen 35 cents a unit.
For the six months ended June 30, Alliance Holdings profits fell 4.6 percent to $44.7 million, or 75 cents per unit, from $46.9 million, or 78 cents.
These reflect the quarterly cash distributions Alliance Holdings expects to earn from ARLP.
The AHGP units jumped $2.39 cents on the Nasdaq Exchange Monday to close at $26.49. At 106,903, its trading volume almost doubled its daily average.
Originally published by Kirby Lee Davis.
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