Consol Energy's Profit Falls - But Who Cares?

| About: CONSOL Energy (CNX)




Consol Energy (NYSE:CNX) reported a very ho hum quarter; in fact not so great (idled mine being a main factor). Similar to what it did three months ago [Oct 25- Consol Energy Reports as Expected]. But it doesn't really matter. I went bullish on coal in mid September when no one liked them [Coal Stocks Quietely in a Bull Market], and as each month passes and more data points come out about the shortages in energy [China has Energy Shortage, South Africa has Energy Shortage].

I think coal is becoming more and more of a secular growth story - joining the agriculture names, and global infrastructure names as one of my favorite themes. Deserving a larger weight in the fund holdings. While I did sell off some names, this is more a condition of a bear market, not specific to these stocks. On the next pull back (if/when it occurs) I plan to make these larger holdings than the basket of stocks I own has been the past four months (generally a 5-7% stake).

As energy shortages become more of a crisis the world over, I can see more countries hoarding their own reserves... and coal is turning more into a global marketplace - so those with excess will benefit. As other countries take their supply out of the world marketplace, the US producers, who do have excess, will benefit. And if there is one thing the US has excess of aside from "financial innovation" and hot air out of politicians, it's coal. And countries in crisis will pay up for this, especially with our trashed dollar making it so cheap for them to import.

This was my original thesis back in the fall, and it is playing out like clockwork. So I plan to expand the fund position in this sector, as the secular growth story is building. So earnings here or there... whatever... the next few years are going to showcase coal in my belief. Of course in the near term, much like a gold miner, there is always risk associated with mine issues - so you will have opportunities along the way. But you can look at the chart of Consol Energy (CNX) above... and see a stock at a 52 week high... in *THIS* type of market. That tells you all you need to know. In fact it reminds me of the fertilizer stocks about a year ago when people were saying "what's the big fuss? why are these stocks ramping? Overvalued!!"

Consol Energy Profits Falls on Idled Mine

  • Coal producer Consol Energy Inc (CNX) said on Tuesday that despite soaring coal prices, fourth-quarter profit fell sharply, much of it because of idled production at one of its main mines.
  • Net earnings were $6.8 million, or 4 cents per share, compared with $115.3 million, or 62 cents per share, in the same quarter of 2006, the Pittsburgh-based company said. Revenue fell 3.7 percent to $918.6 million.
  • Consol said the Buchanan Mine roof fall that occurred last July, forced the mine to idle production and hurt net income by approximately $31 million.
  • There were additional expenses incurred in managing and monitoring the underground mine atmosphere since the mine was idled, as well as reduced income from lost sales.
  • Consol had expected to resume full production in January at Buchanan near Mavisdale, Virginia. But last week it said it hoped to enter the mine for evaluation and repairs on Jan 27.
  • In October, Consol lowered fourth-quarter and full-year production estimates, citing adverse geological conditions at two other mines as well as the idling of Buchanan.
  • "The idling of the Buchanan Mine for the entire quarter significantly capped fourth quarter earnings," said President and Chief Executive Officer Brett Harvey. "However, now that we have reentered the mine, I expect this event to move quickly to conclusion with the result that financial performance should improve substantially."
  • "Despite the loss of Buchanan for the entire quarter," Harvey added, "coal operations still managed to report a period-to-period increase in average realized prices of 5.1 percent, a modest increase in total costs per ton of 1.6 percent, an increase in operating margins of 20.5 percent and an increase in financial margins of 33.8 percent."
  • He said coal fundamentals remain good. "Global demand for coal is strong and sets a positive tone in both our export markets and the steam market here in the United States." He said steam coal supplies were in close balance with demand, while high quality metallurgical coal was in tight supply.

Wow a lot of bad news - imagine if Apple (NASDAQ:AAPL) reported such a quarter? Instead of dropping 20% it would be down 90%. How bad did this hit Consol Energy? Off a massive 1.6%. That tells you all you need to know. Now I do hope the general market takes these coal stocks down so I can remount sold off positions at lower prices. But unlike retailers or financials, this is truly a growth market with fundamentals behind it... so you have to discern between one rally and another, as to "why".

One more thing... 10 Year US Coal Export Deals Possible

  • With overseas demand for U.S. coal so strong, CONSOL Energy (CNX) could this year sign the longest TERM contracts seen in recent years -- seven to 10 years in duration, CEO Bret Harvey said Tuesday.
  • With the strength of global coal demand expected to continue unabated this year, we could sign additional international contracts for steam coal this year with durations of seven to 10 years," Harvey said in a news release describing the company's fourth-quarter performance.

Bingo. Secular growth market.

Disclosure:Long Consol Energy in fund; no personal position (yet)