Business context and reporting period
This filing is CONSOL Energy Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2018. The supplied metadata names Core Natural Resources, Inc., but the filing identifies CONSOL Energy Inc. as the registrant. CONSOL is a coal producer centered on the Pennsylvania Mining Complex (PAMC), with coal terminal operations, undeveloped reserves, and a controlling economic interest in CONSOL Coal Resources LP. It separated from CNX Resources on November 28, 2017; 2017 comparative results include pre-separation historical and allocated amounts and may not be directly comparable to standalone 2018 results.
Financial results and key metrics
Amounts below are U.S. dollars; financial statement amounts are in millions unless noted.
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Total revenue and other income | $324.2 | $335.3 | $1,149.8 | $1,059.6 |
| Net income | $9.1 | $8.5 | $132.8 | $107.2 |
| Net income attributable to CONSOL shareholders | $5.7 | $7.7 | $113.3 | $96.6 |
| Basic EPS | $0.20 | $0.28 | $4.04 | $3.46 |
| Cash from operating activities | Not stated for quarter | Not stated for quarter | $330.3 | $171.7 |
| Capital expenditures | Not stated for quarter | Not stated for quarter | $96.9 | $51.0 |
- Q3 coal performance: Coal revenue was $294.8 million versus $279.2 million. Sales were 6.2 million tons versus 6.3 million; average revenue per ton increased to $47.21 from $44.16. Average cash cost per ton was $30.88 versus $30.94, and average cash margin per ton rose to $16.33 from $13.22. These per-ton measures are non-GAAP operating metrics.
- Nine-month coal performance: Coal revenue increased to $1,016.5 million from $899.4 million; sales rose to 20.7 million tons from 19.9 million. Average cash margin per ton increased to $20.24 from $15.69.
- Cash and liquidity: At September 30, cash and cash equivalents were $250.5 million; cash flow reporting also included $25.9 million of restricted cash. Current assets were $468.9 million and current liabilities $373.1 million. The $300 million revolving credit facility had no borrowings and $245.9 million unused capacity after letters of credit.
- Debt: Total long-term debt and capital lease obligations were approximately $895 million, including $20.9 million of current debt. Debt included $279.5 million of 11% second-lien notes, $390.3 million carrying value of Term Loan B, $73.8 million of Term Loan A, $102.9 million of revenue bonds, and capital leases. The reported covenant ratios were 1.29x first-lien gross leverage, 1.63x total net leverage, and 2.17x fixed-charge coverage.
- Margins and interest: Q3 pre-tax income was $8.4 million, compared with $12.3 million; net interest expense rose to $20.9 million from $3.9 million. The filing does not present a consolidated GAAP operating margin as a headline metric.
Material changes versus prior comparable period
- Q3 coal pricing and coal revenue improved, but total revenue and other income declined, chiefly because freight revenue fell by $19.4 million as fewer shipments included company-provided transportation. Prior-year miscellaneous income included an $8.4 million contract buyout.
- Q3 net income attributable to shareholders fell despite higher coal revenue, reflecting substantially higher post-separation interest expense and a larger loss in corporate and other activities. Q3 PAMC pre-tax earnings increased to $38 million from $21 million, while other activities recorded a $30 million pre-tax loss versus $9 million.
- For the first nine months, shareholder net income increased to $113.3 million from $96.6 million, supported by higher coal prices and volume. Operating cash flow rose $158.6 million year over year. Capital expenditures rose $45.8 million, largely due to the refuse disposal project.
- Debt reduction included $26 million of Term Loan A payments, $3 million of Term Loan B payments, and approximately $20.5 million of second-lien note repurchases. The Company also repurchased 281,272 of its shares at an average $40.03 per share and 77,536 CCR units at an average $17.86 per unit during the nine-month period.
Guidance, risks, contingencies, and unusual items
- Outlook: Management expected 2018 coal production of approximately 27 million tons and coal capital investment of $130–$145 million. It expected strong market demand to continue into Q4 2018 and 2019 and said operating cash flows should meet capital and debt-service needs. As of November 1, 2018, contracted volumes were 77% of assumed 27-million-ton sales for 2019 and 33% for 2020. Guidance was not reconciled to a GAAP measure because certain items were uncertain.
- Debt and cash-flow sensitivity: The Term Loan B agreement requires a payment tied to 2018 excess cash flow after year-end. Management estimated that payment at about $100 million if calculated using September 30 conditions, subject to fourth-quarter performance and other cash uses. Floating-rate borrowings expose the Company to interest-rate changes; the 11% notes are a significant fixed-cost obligation.
- Operational and market risks: Results are exposed to coal price and demand changes, alternative fuels and environmental rules, customer concentration and credit risk, rail and export logistics, geological conditions, equipment and longwall moves, supply costs, permits, mine safety, and environmental and reclamation obligations. Management cited three longwall moves and a July vacation period as factors affecting Q3 production, partly offset by improved Enlow Fork conditions.
- Contingencies: The Company reported $732.5 million of maximum commitments across letters of credit, surety bonds, and guarantees, largely supporting employee and environmental obligations; these are not all recorded liabilities. Management expected the guarantees to expire without funding. Pending claims’ recorded accruals were described as immaterial, though future aggregate losses could be material and could not be reasonably estimated. Retiree-benefit lawsuits, including consolidated Fitzwater and Casey cases, remain pending; the Company says it will defend them.
- Unusual items and other disclosures: The Company recorded a $3.1 million loss on debt extinguishment during the nine months. The 2018 adoption of a tax-accounting standard reclassified $84.7 million from accumulated other comprehensive loss to retained earnings, with no change to total equity. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the issuer identity: this source is CONSOL Energy Inc., not the company named in the request metadata.
- Assess the sustainability of higher coal realizations and cash margins, and the effect of market prices on uncontracted 2019–2020 volumes.
- Review fourth-quarter cash generation and the resulting Term Loan B excess-cash-flow payment, alongside the $130–$145 million 2018 capital spending plan.
- Track interest expense, leverage covenant headroom, revolver availability, and the cash and collateral constraints of the receivables securitization facility.
- Monitor environmental, reclamation, employee-benefit, retiree-litigation, and Murray Energy guarantee exposures, including the potential that aggregate claims exceed recorded accruals.
- Interpret year-over-year comparisons with care because 2017 results include pre-separation allocated costs and are not fully like-for-like with the post-separation company.