PCX Patriot Coal Corp.

Coal producer Patriot Coal Corporation (PCX) posted a loss of 17 cents per share for the first quarter, which was wider than the Zacks Consensus Estimate for a loss of 15 cents.

The bottom line was also shy of the year-ago earnings of 5 cents.

Top Line Scenario

Revenue in the first quarter rose 23% from last year to $577 million due to higher average selling prices and a swell in sales volume recorded in 2011. Net revenue also outperformed the Zacks Consensus Estimate of $550 million.

Of the first quarter revenues, around $495.7 million came from the Appalachia Mining Operations, $74.7 million from the Illinois Basin Mining Operations and $6.6 million from Other Appalachia Operations, representing contributions of 86%, 13% and 1%, respectively.

Operating Highlights

Volumes sold in the reported quarter totaled 8.0 million tons (up 5% year over year), including 6.1 million tons of thermal and 1.9 million tons of metallurgical coal. The robust sales came on the back of expansion in the company’s Appalachia sales, boosting the company’s plan to produce more than 11 million tons of metallurgical coal by 2013.

Appalachia Mining Operations contributed 6.2 million tons to total company sales while Illinois Basin Mining Operations contributed 1.8 million tons.

Revenue per ton in the first quarter rose 17% to $71.64 from the year-ago quarter, with Appalachia revenues increasing 19.8% to $75.23 per ton and Illinois revenues expanding only 0.2% to $42.35 per ton.

Operating cost per ton totaled $59.12 in the reported quarter, compared with $51.17 in the year-ago quarter. EBITDA in the 2011 first quarter was $48.6 million, up 7.5% from last year, mainly driven by higher average selling prices and sales volumes.

Financial Performance

Patriot Coal’s liquidity position as of March 31, 2011 was quite sound with cash and cash equivalents of roughly $241.3 million, and no borrowings on its revolving credit facility. Available liquidity came to about $450 million as of March 31, 2011. Patriot’s capital expenditure totaled $30.4 million for the first quarter.

Guidance

Going forward, Patriot will pursue its strategies to further improve performance in 2012 and beyond. Keeping this focus, the company has been continually locking in excellent margins by selling its expected met coal production at attractive prices.

As a result, the company has booked more than 3 million tons of met coal for 2011 and 2012 delivery at an average selling price of $173 per ton. Patriot’s average selling price for met coal for the remainder of 2011 stands at nearly $150 per ton. The company said it currently has nearly 1 million tons of metallurgical coal to be priced for delivery in 2011.

On the thermal side too, Patriot continues to benefit from rising prices in the global marketplace, and has contracted more than 3 million tons for delivery to international markets in 2011 and 2012.

Patriot has been focused on its metallurgical coal expansion and remains on track to produce more than 11 million tons of metallurgical coal by 2013. As the company progresses on its met coal expansion plans, it expects total met sales in 2011 to be between 8.0 and 8.4 million tons.

For 2011, Patriot expects capital expenditures to be in the range of $150 to $175 million, as it moves ahead with its metallurgical coal expansion program.

Our View

Though Patriot’s first quarter earnings results have been disappointing, the quarter marked a very solid start for the year in terms of sales and revenue growth. Going forward, we expect the company to benefit from its met coal expansion plans, which may be positive the company’s bottom line.

Based in St. Louis, Missouri, Patriot Coal is a leading coal producer in the eastern United States, having 14 mining complexes in Appalachia and the Illinois Basin. The company primarily competes with International Coal Group Inc. (ICO) and James River Coal Co. (JRCC).

 
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