Business context and reporting period
The supplied filing is CONSOL Energy Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2019, filed August 6, 2019. This does not match the request metadata identifying Core Natural Resources, Inc.; verify the issuer before relying on this summary. CONSOL’s core business is Appalachian coal mining through the Pennsylvania Mining Complex (PAMC), alongside the CONSOL Marine Terminal and other coal assets.
Financial performance
| Metric | Q2 2019 | Q2 2018 | First half 2019 | First half 2018 |
|---|---|---|---|---|
| Total revenue and other income | $384.3 million | $415.3 million | $754.9 million | $825.5 million |
| Coal revenue | $350.6 million | $370.7 million | $683.1 million | $721.7 million |
| Net income attributable to CONSOL shareholders | $43.3 million | $45.2 million | $57.7 million | $107.6 million |
| Diluted earnings per share | $1.56 | $1.58 | $2.08 | $3.78 |
| Operating cash flow | Not separately presented | Not separately presented | $165.8 million | $278.2 million |
| Capital expenditures | Not separately presented | Not separately presented | $83.0 million | $56.2 million |
- Q2 earnings before tax were $47.0 million, versus $55.7 million a year earlier; the effective tax rate was a benefit of 3.9%. First-half earnings before tax were $66.5 million, versus $132.9 million.
- Q2 coal sales were 7.4 million tons, with average revenue of $47.53 per ton and average cash cost of $31.07 per ton. Cash margin per ton was $16.46, down from $20.35. First-half cash margin per ton was $17.99, versus $21.92.
- At June 30, cash and cash equivalents were $155.7 million and restricted cash was $18.7 million. Current assets were $396.4 million against current liabilities of $407.9 million.
- Total debt and finance lease obligations were about $763 million, including $38.0 million current. The company reported $717.3 million of long-term debt on the balance sheet, excluding finance leases. Total equity was $610.2 million.
- Operating cash flow less capital expenditures was approximately $82.8 million for the first half. Cash, cash equivalents and restricted cash declined by $90.6 million to $174.4 million, reflecting debt repayment, repurchases, capital spending and other financing outflows.
Material changes versus the prior comparable period
- First-half shareholder-attributable income fell by $49.9 million. Lower coal revenue, reduced sales volume, weaker domestic contract pricing and higher unit costs contributed; the $24.6 million first-half debt-extinguishment loss also weighed on results.
- First-half production was 14.1 million tons, down from 14.4 million. Q2 production was 7.2 million tons versus 7.7 million, affected by an additional longwall move, slower recovery after the move and operating delays.
- Average first-half revenue per ton fell $1.52 to $48.41, while average cash cost per ton rose $2.41 to $30.42. Management cited equipment rebuilds and longwall overhauls, higher maintenance and supply costs, and difficult conditions and delays at Bailey.
- First-half operating cash flow decreased $112 million. Capital expenditures rose $26.8 million, principally for airshafts, belt systems and equipment.
- Debt refinancing in March 2019 increased revolving-credit commitments to $400 million, reduced specified borrowing margins and extended facility maturities. The company also made a required approximately $110 million Term Loan B repayment.
- Adoption of lease accounting in 2019 added operating lease right-of-use assets and liabilities; management said the change materially affected the balance sheet but did not significantly affect earnings or cash flows.
Outlook, risks and unusual items
- Management expected 2019 capital needs of $155 million to $185 million, including Itmann development, airshaft work and belt-system spending. Itmann construction was expected to begin in late 2019 or early 2020, with full production anticipated in 2021 and annual output of more than 600,000 tons of coking coal.
- Management expected adequate 2019 operating cash flow from domestic and export thermal markets and cost controls, and said available liquidity sources should cover working capital, capital spending, debt service and letters of credit. These are forward-looking statements, not guarantees.
- As of August 6, the company reported contracted positions for 80% of assumed 27-million-ton annual sales volume in 2020 and 34% in 2021. Coal prices, customer demand, power prices, export markets, transportation, operating performance and regulatory conditions could affect results.
- The $400 million revolving facility had no borrowings and $58.4 million of letters of credit outstanding, leaving $341.6 million of unused capacity. The receivables securitization facility had no borrowings but $37.7 million of letters of credit and no unused capacity; $3.9 million cash collateral was posted.
- At June 30, leverage covenant ratios were 1.15x first-lien gross leverage and 1.74x total net leverage; fixed-charge coverage was 1.52x. The respective limits were 2.00x, 3.00x and a minimum 1.10x, with leverage limits scheduled to tighten in March 2020.
- The company recorded $24.6 million of first-half debt-extinguishment loss from the required repayment, note repurchases and refinancing. It also repurchased $19.3 million of second-lien notes and 351,443 common shares for about $9.6 million during the first half.
- Potential exposures include coal-price and demand volatility, customer concentration, mine and geological disruptions, environmental and reclamation obligations, employee benefit liabilities, and legal claims. The filing lists $741.6 million of maximum potential commitments under letters of credit, surety bonds and guarantees; management believed these would expire without funding. Accruals for pending claims were described as immaterial, but future aggregate losses could be material and were not reasonably estimable.
- Management identified consolidated retiree-benefit obligations under UMWA plans estimated at approximately $70.9 million based on information available at December 31, 2018. The filing also describes retiree-health class actions, which the company said it intended to defend.
- CONSOL reported effective disclosure controls and no material change in internal controls during the quarter. Management said the ERP implementation continued and would be assessed as remaining functionality is deployed.
Most important facts for investors to verify
- Confirm the issuer: the supplied filing is for CONSOL Energy Inc. (CEIX), not Core Natural Resources, Inc.
- Check whether mine performance and unit costs improved after the longwall moves and delays, particularly at Bailey.
- Track coal prices, contracted volumes, customer concentration and the company’s ability to sustain margins across domestic and export markets.
- Reconcile debt repayment and refinancing costs, cash balances, capital spending plans and available revolver capacity against future cash generation.
- Review the assumptions and potential cash demands associated with retiree benefits, reclamation, guarantees and litigation.
- Check subsequent developments disclosed after quarter-end: the July 2019 expansion of the repurchase program to $200 million and CCR’s declared $0.5125-per-unit distribution.