Zacks_Analysts' Blog : CONSOL Tops as Sales Surge - Analyst Blog

Diversified fuel producer CONSOL Energy Inc. (CNX) reported earnings of 70 cents per share for the fourth quarter of 2011, surpassing the Zacks Consensus Estimate of 64 cents. Earnings were substantially higher than the year-ago quarter of 46 cents per share.

Reported earnings during the quarter were 85 cents, which included 15 cents relating to the Hess transaction.

Adjusted earnings per share of $2.76 for fiscal 2011 outpaced $1.60 reported in fiscal 2010 but missed the Zacks Consensus Estimate of $2.96.

Revenue

CONSOL Energy’s quarterly revenue increased 13.6% to $1.54 billion from $1.36 billion in the year-ago quarter. The year-over-year growth in revenue was driven by higher sales volumes and better realized price of coal. Revenues were also boosted by the strong contribution from its Gas division.

The top line easily beat the Zacks Consensus Estimate of $1.46 billion.

CONSOL Energy’s fiscal 2011 revenue increased 16.8% to $6.11 billion from $5.24 billion in 2010. The top line also surpassed the Zacks Consensus Estimate of $5.94 billion.

Operational Update

Total costs during the quarter were up 7% year over year while for the fiscal year costs increased 11.8%. The cost escalation was due to an increase in cost of goods sold, higher SG&A expenses and freight expenses. Rising costs were marginally tempered by a decline in gas purchased costs.

However, total cost as a percentage of revenue was lower in the quarter as well as the fiscal year, compared with the prior-year period, which had a favorable impact on margins.

Operating income rose a substantial 71.7% for the quarter and 68.4% for the fiscal year, boosted by revenue growth and a relative decline in costs.

Financial Update

As of December 31, 2011, cash and cash equivalents were $375.7 million compared with $32.8 million as of December 31, 2010.

Long-term debts at the end of 2011 stood at $3.12 billion, flat year over year.

Guidance

CONSOL expects first quarter 2012 coal production to be in the range of 15.5–15.9 million tons and 2012 coal production to be in the range of 59.5 − 61.5 million tons.

CONSOL expects first quarter 2012 gas production to be in the range of 36–38 Bcf (billion cubic feet), and 2012 production to be 160 Bcf.

The company also marginally lowered its capital expenditure guidance provided for 2012. The revised expectation is now at $1.5 billion, a decrease from the previous expectation of $1.7 billion due to mild weather and high production, which has caused natural gas prices to drop to a 10-year low.

Peer Comparison

Peabody Corporation (BTU), competing with CONSOL Energy, reported fourth quarter and fiscal 2011 numbers. Operating earnings per share and total revenues for both the quarter and the fiscal lagged the corresponding Zacks Consensus Estimates.

However, fiscal 2012 can turn out to be a different story provided Peabody succeeds to tap the increased global demand for metallurgical and thermal coal. Higher demand is expected to issue from Asian countries as well as Germany.

Based in Canonsburg, Pennsylvania, CONSOL Energy is a multi-fuel energy producer as well as energy services provider, primarily catering to the U.S. power generators. CONSOL Energy presently retains a Zacks #4 Rank, which translates into a short-term Sell rating.