Alliance Resource Partners profits double on increased coal production

TULSA — Alliance Resource Partners LP profits surged in the first quarter on increased demand for coal and lower operating costs, the company said Monday.

Alliance executives said sales were up in the quarter both domestically and internationally, despite the growing disfavor of coal-fired power plants throughout the country.

“Even though winter weather this year was comparable to the warmer-than-normal pattern of 2016, we finished the 2017 quarter with coal inventories of 2.2 million tons less than one year ago,” CEO Joe Craft said during a conference call with analysts on Monday. “Not only did the 2017 quarterly results benefit from higher export volumes, our sales increased due to shipments of metallurgical coal.”

Alliance Resource Partners units surged $1.85, or 8.7 percent, Monday to close at $23.10. Units of parent company Alliance Holdings GP LP gained $2.76, or more than 10 percent, Monday to close at $29.41.

While production increased, Alliance costs declined to $263 million, down slightly from $264 million one year ago.

Alliance generated a net income of $105 million, or $1.10 per unit, in the first quarter, up from $47.3 million one year ago. Revenues increased 12 percent to $461 million, up from $412 million in the first quarter of 2016. Earnings before interest, taxes, depreciation and amortization (EBITDA) were $178 million, up 42 percent from $126 million.

Based on expected continued demand increases, Alliance executives boosted their 2017 guidance. The company now is expected to produce 38.1 to 39.1 million tons of coal in 2017, generating revenues of $1.78 billion to $1.82 billion, net income of $290 million to $330 million and EBITDA of $605 million to $645 million.

Coal prices are expected to decline 11 percent to 12 percent from 2016 levels.

“Our expectations for improving coal markets in 2017 remain intact,” Craft said. “Natural gas prices have been resilient so far this year, despite generally mild weather patterns, and the forward NYMEX curve continues to be favorable for coal. Stronger than anticipated export markets have also helped offset the mild U.S. winter and added additional support to domestic coal markets.”

Alliance executives on Monday also boasted of the company’s improved financial position

following the sale of $400 million in 7.5 percent senior notes due 2025 and an extension of its $457 million revolving credit facility to May 2021.

"These financings provide Alliance Resource Partners with a stable, long-term capital structure with ample liquidity and flexibility to execute our strategy," Craft said. "With expectations for generating strong cash flows while maintaining a conservative balance sheet and robust distribution coverage ratio, we believe Alliance Resource Partners is well positioned to once again consider gradually increasing quarterly distributions to our unit holders."

Alliance sold 9.61 million tons in the first quarter, up 29 percent from 7.46 million tons in the year-ago period. The sales increases offset lower prices. Alliance received $45.65 per ton in the most recent quarter, down 15 percent from $53.82 in the year-ago period.