Mild 2015-2016 winter puts crimp in Westmoreland Coal’s Q1 2016 earnings

Westmoreland Coal (NasdaqGM:WLB) said May 10 that it had revenues revenues in the first quarter of $354.7 million, with tons sold standing at 13.8 million.

Net income applicable to common shareholders was $30.6 million, including a $47.9 million tax benefit resulting from the change in valuation of tax assets following the San Juan coal mine acquisition in New Mexico.

“Despite weak power demand during the first quarter, which was one of the warmest quarters on record, our mine-mouth and cost-protected model again helped us deliver solid results, especially cash flows,” said Kevin Paprzycki, Westmoreland’s Chief Executive Officer. “We continue to make progress on our cash generation initiatives as we work towards paying down our debt late in the year. Our goal is to create value for Westmoreland’s investors by generating cash and strengthening our balance sheet.”

The record-setting warm weather and the power pricing environment in many of Westmoreland’s markets impacted the first quarter results. Westmoreland made progress in the quarter implementing cost curtailment initiatives and integrating San Juan Coal Co. following the Jan. 31 acquisition. The consolidated and Coal – U.S. segment results benefited year over year from having two months of San Juan results included in the first quarter of 2016.

The Coal – U.S. segment experienced market softness as customers reduced their power generation due to the low number of heating days this winter. Coal – Canada results were impacted by low demand, however operating improvements led to increased profitability. Lower open market pricing in Ohio pressured results at Coal – WMLP.

The $14.0 million of free cash flow Westmoreland generated in the quarter was comprised of cash flow provided by operations of $18.2 million, less capital expenditures of $5.5 million, plus net cash collected under a certain contract for loan and lease receivables of $1.3 million. Working capital investments, which included the initial underwriting of San Juan’s accounts receivables, reduced Westmoreland’s free cash flow by $16.9 million in the first quarter.

Westmoreland ended the 2016 first quarter with $17.8 million of cash and cash equivalents on hand. Contributing to the $5.2 million decrease from year end were, among other items, first quarter’s free cash flow generation, $11.0 million cash debt reductions, approximately $6 million of cash used, net of loan proceeds received, to purchase San Juan and $3.2 million of cash used for additional bonding. Westmoreland had outstanding debt at quarter end of $1,129.0 million, an increase from year end driven by the San Juan financing.

At March 31, 2016, Westmoreland had zero drawn on its revolving credit facility and had, net of letters of credit, $36.3 million available to draw. An additional $15 million was available to Westmoreland Resource Partners through its revolving credit facility, which is not available to the parent for borrowings.

Commenting on the outlook, Paprzycki said, “After taking into account the current market conditions, we still expect to achieve the guidance we issued in February. We have visibility into our cash flow stream because we entered this year with nearly 90% of our tons under cost-protected contracts. Our cash generation, considering normal seasonality, will strengthen following the second quarter which typically experiences the year’s lowest energy demand. We will look to reduce debt later in the year with our increased cash flow.”

Westmoreland’s 2016 guidance remains:

  • Coal tons sold, 53 million-60 million tons
  • Adjusted EBITDA, $235 million-$275 million
  • Free cash flow, $60 million-$80 million
  • Capital expenditures, $59 million-$71 million
  • Cash interest, approximately $90 million

Westmoreland Coal is the oldest independent coal company in the United States. Westmoreland’s coal operations include surface coal mines in the United States and Canada, underground coal mines in Ohio and New Mexico, a char production facility, and a 50% interest in an activated carbon plant. Westmoreland also owns the general partner of and a majority interest in Westmoreland Resource Partners LP, a publicly-traded coal master limited partnership. Its power operations include ownership of the two-unit ROVA coal-fired power plant in North Carolina. 

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.