Business context and reporting period
This summary covers CONSOL Energy Inc.’s unaudited quarter ended March 31, 2018, compared with the three months ended March 31, 2017. The filing is for CONSOL Energy Inc., a coal producer—not the “Core Natural Resources, Inc.” named in the request metadata. CONSOL separated from CNX Resources Corporation on November 28, 2017; 2017 comparative results are historical predecessor results, and 2018 was the company’s first full quarter as an independent public company.
The business centers on the Pennsylvania Mining Complex (PAMC), where CONSOL owns a 75% interest, and includes its interest in CONSOL Coal Resources LP, the CONSOL Marine Terminal, and undeveloped coal reserves.
Financial performance and position
| Metric | Q1 2018 | Q1 2017 | Change / context |
|---|---|---|---|
| Total revenue and other income | $410.3 million | $372.2 million | Up 10.2% |
| Coal revenue | $351.0 million | $316.4 million | Up $34.6 million |
| Earnings before income tax | $77.1 million | $55.9 million | Up 38.1% |
| Net income | $71.0 million | $46.4 million | Up 52.8% |
| Net income attributable to CONSOL shareholders | $62.4 million | $41.0 million | Up 52.3% |
| Basic / diluted EPS | $2.23 / $2.20 | $1.47 / $1.47 | 2017 EPS is pro forma |
| Cash from operating activities | $115.7 million | $48.5 million | Up $67.2 million |
| Capital expenditures | $22.0 million | $9.0 million | Up $12.9 million |
| Cash, end of period | $191.7 million | $6.6 million | Different post-separation capital structure |
Coal sales volume was 6.6 million tons versus 6.8 million; average revenue per ton rose to $52.98 from $46.80, while average cash cost per ton rose to $29.21 from $28.75. Average cash margin per ton, a non-GAAP measure, improved to $23.77 from $18.05. Production was 6.7 million tons versus 6.9 million tons. The filing reports a 2018 effective tax rate of 8.0%, compared with 16.8% in 2017, primarily reflecting the benefit of excess percentage depletion.
Operating cash flow less capital expenditures was approximately $93.8 million in Q1 2018, compared with $39.5 million in Q1 2017; these are calculated figures, not reported GAAP measures. The increase in operating cash flow reflected higher net income, deferred-tax changes, and working-capital movements. Consolidated net margin on total revenue and other income was approximately 17.3%, compared with 12.5% in Q1 2017, calculated from reported net income and total revenue and other income.
Debt and liquidity
At March 31, 2018, cash was $191.7 million, current assets were $437.0 million, and current liabilities were $388.2 million (current ratio approximately 1.13). Long-term debt, including current maturities, and capital lease obligations totaled approximately $905 million. Debt included a $399 million Term Loan B principal balance, $85 million Term Loan A, $290 million of 11% second-lien notes, $103 million of revenue bonds, and capital leases and other obligations. The company repaid $15 million on Term Loan A, $1 million on Term Loan B, and repurchased $10 million principal of second-lien notes during the quarter; it recorded a $1.4 million debt-extinguishment loss.
The $300 million revolving credit facility had no borrowings and $54.4 million of letters of credit outstanding, leaving $245.6 million unused. The receivables facility had no borrowings but its approximately $61.4 million capacity was fully used for letters of credit, leaving no unused capacity. The company reported compliance with its credit covenants: first-lien gross leverage of 1.45x against a 2.25x limit, total net leverage of 2.03x against a 3.25x limit, and fixed-charge coverage of 2.53x against a 1.00x minimum. The total net leverage ratio exceeded 2.00x, a threshold relevant to dividend restrictions.
Material changes, outlook, and risks
- Higher coal revenue primarily reflected stronger pricing: management cited stronger PJM West power prices, improved domestic contract pricing, and continued export-market strength. Lower sales volume was attributed partly to weather-related rail and port constraints.
- Production declined because of adverse geological conditions at Enlow Fork and a longwall move at Harvey, partly offset by higher Bailey production. Terminal throughput increased to 3.5 million tons from 3.1 million.
- Interest expense increased to $21.0 million from $4.0 million, largely reflecting the independent company’s post-separation financing structure; the comparison period preceded separation. Other nonrecurring or notable items include the 2017 asset-sale gain of $8.0 million, versus $0.3 million in 2018, and 2018 separation-related cash payments of $18.2 million.
- Management forecast approximately 27 million tons of coal production and $125–$145 million of coal capital investment for 2018. It expected stronger operating cash flow than in 2017 and estimated lease conversions would reduce 2018 cash spending by about $10 million. Management said it expected liquidity and cash generation to cover working capital, capital spending, debt service, and letters of credit. Production and capital-spending guidance was not reconciled to GAAP measures.
- Key risks include coal-price and demand volatility, customer concentration, transport disruptions, mine geology and operating hazards, environmental and reclamation obligations, employee benefit liabilities, interest-rate and debt risks, and possible trade tariffs affecting supplies or coal exports. The filing identifies cybersecurity as a material risk, though the company reported no known material cybersecurity incident.
- Management described pending retiree-health-benefit class-action litigation, including Fitzwater and Casey, and other ordinary-course claims. Accruals for pending claims were said to be immaterial, but aggregate future losses could be material and could not be reasonably estimated. Maximum disclosed guarantees, letters of credit, and surety-bond commitments totaled approximately $717 million; the company said it expected these generally to expire without funding.
Important facts for investors to verify
- Confirm the issuer identity: the supplied filing is CONSOL Energy Inc.’s 10-Q, despite the request metadata naming Core Natural Resources, Inc.
- Assess the comparability of Q1 2017 predecessor results with post-separation 2018 results, including the effects of corporate costs, financing, and pro forma 2017 EPS.
- Track coal pricing, contract coverage, sales volumes, and whether rail, port, geological, or longwall issues persist; management reported 2018 and 2019 contracted positions above 95% and 70%, respectively, assuming 27 million tons of annual sales.
- Monitor leverage covenant headroom, dividend restrictions, high-cost 11% notes, debt maturities, and availability after letters of credit.
- Review the scale and timing of employee, environmental, reclamation, litigation, and guarantee exposures, including amounts not recorded as balance-sheet liabilities.
- Compare actual 2018 production and capital investment with guidance, and verify whether the expected cash-flow and lease-conversion benefits materialized.