Cloud Peak Energy: Stock Rose 25% After 2nd Quarter 2016 Earnings Results

| About: Cloud Peak (CLD)

Summary

Cloud Peak Energy announced its 2Q16 earnings results on July 28, 2016.

Stock Rose 25% after second quarter 2016 earnings results.

I will try to find the explanation.

Cloud Peak Energy Inc. (NYSE: CLD), one of the largest U.S. coal producers and the only pure-play Powder River Basin ("PRB") coal company.

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Source: Cloud Peak Energy presentation

Management guidance.

Tables provide the current and the previous outlook and assumptions for 2016 financial and operational metrics:

Current (press release 2q 2016) guidance for 2016

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Source: Cloud Peak Energy presentation

Previous (press release 1q 2016) guidance for 2016

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Source: Cloud Peak Energy presentation

Management has adjusted coal shipments guidance to reflect the canceled tonnage of the contract buyouts and now expect to ship between 55 million and 60 million tons in 2016. For capital expenditures, management has increased the guidance range to be between $35 million to $45 million this year. This $10 million increase is the land agreement that was signed in 2008 was amended to move forward the payment by one year and reduced the overall payment amount. CapEx guidance also includes the completion of the drag line move to Antelope mine and maintenance capital expenditures. Because of the reduction of asset retirement obligations resulted in an offset to depreciation expense, management now expects DDA expense to be between $50 million and $60 million for the year.

Coal shipments.

Source: 10-q report, author calculation

Shipments for the second quarter of 2016 were 11.8 million tons, down from 16.0 million tons for the same period in 2015 and down from 12.96 million ton for the first quarter of 2016. The second quarter was slow and it was with high coal stockpiles, low natural gas prices and reduced electricity demand.

Source: Cloud Peak Energy presentation

Management expects to ship between 55 million and 60 million tons in 2016. The company has delivered 24.76 million ton during first half-year.

So management expects second half-year shipments between 15-17.5 million ton per quarter.

If the summer remains hot, management will expect to see a meaningful reduction in stockpiles and then increase in shipments to give a strong second half to the year.

Operational results

Owned and Operated mines segment.

Source: 10-q report, author calculation

Second quarter realized price per ton of $12.60 was lower than the $12.76 realized in the prior year and lower than $12.65 realized in the previous quarter.

The company reported $10.50 the average cost of coal sold per ton. This cost is lower than the $10.75 per ton it reported in 2Q15 and the $11.15 per ton it reported in 1Q16.

Source: 10-q report, author calculation

These factors resulted in a per ton margin of $2.10 realized for the second quarter of 2016. It is higher than $1.5 realized in the previous quarter and higher than $2.01 realized in the previous year.

Logistics and Related Activities

Source: 10-q report

The loss during the second quarter was as expected given amended port and rail contracts as the $8.2 million of take-or-pay contract.

International coal markets.

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Source: author calculation

International thermal coal markets continued to be over supplied, but they are showing signs of coming into balance. The supply is reduced and demand continues to grow. International coal prices have increased in recent months by over 40%. Imports into China have risen in recent months, the domestic production continues to decline.

At current prices, the Company does not expect to export any tons in 2016, but will look to restart exports when prices rise sufficiently for them to be profitable.

Other segment.

Revenue for other includes contract buyouts $18.8 million for the second quarter of 2016, which related to 3.9 million tons with three different customers, as compared to no contract buyout revenue for the second quarter of 2015.

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Source: Cloud Peak Energy presentation

The company contracted 3 million tons for 2017 delivery during the second quarter and fixed the price on 0.5 million tons of index coal. The average price of these transactions was under $12 per ton.

Conclusion.

At current international coal prices, the Company does not expect to export any tons in 2016.

New coal contract prices during the second quarter at domestic market are lower than previous.

The only positive news is a one-time $18 million buyout agreement of 3.9 million tons.

Disclosure: I am/we are long CLD.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.