By Paula C. Squires
Alpha Natural Resources Inc. reported Thursday that net income in the third quarter more than doubled. Net income was from $66.4 million, or 29 cents per diluted share, compared to $31.9 million, or 27 cents per diluted share for the same period in 2010.
The Abingdon-based coal supplier credited a full quarter of results from legacy Massey Energy mines it acquired during a June merger and higher prices for metallurgical coal for the boost. Excluding merger related expenses and other unusual charges, adjusted income from continuing operations was $79.5 million, or 35 cents per diluted share.
That was a brighter picture than the second quarter when Alpha reported a loss of $56.4 million, which included the impact of $254.4 million in pre-tax, merger related expenses. In the third quarter, merger expenses included $10.6 million in charges related to an April 5, 2010 explosion at Upper Big Branch, a Massey mine, where 29 miners were killed.
Alpha acquired Richmond-based Massey on June 1 in a $7.1 billion transaction. The addition of Massey’s production bumped third-quarter revenue to $2.3 billion, compared to $1 billion for Alpha in the third quarter of 2010. Year to date, revenue stood at $5 billion, compared to Alpha’s $2.9 billion, standalone figure for the first nine months of 2010.
The company said expenses grew to $2.2 billion, from $952 million a year ago, due to the inclusion of Massey’s operations. The merger made Alpha the world’s third largest supplier of metallurgical coal, used in manufacturing steel. Met coal shipments are 13.9 million tons year to date, Alpha said, up 56 percent compared with the 8.9 million tons Alpha shipped during the first nine months of 2010.
Alpha CEO Kevin Crutchfield said in a conference call with analysts on Thursday that he expects the Asian market for met steel to remain “robust.” However, the U.S. market for thermal coal, used in the production of electricity, remains muted, the company said, due to slow economic growth, an uncertain regulatory environment and competition from natural gas. “Despite predictions that the sky was falling in September, which afforded us the opportunity to repurchase some of our company shares, we’re not seeing any real change in worldwide demand for met coal or thermal coal,” Crutchfield told analysts.
He also said that all of Massey’s former hourly employees — more than 7,000 workers — have been trained in Alpha’s “Running Right” safety program, and the company already is seeing benefits. According to Crutchfield, the incident rate for accidents is down at Massey legacy mines, and the turnover rate dropped to single digits in September, down from 20 percent.
Alpha also continues with an optimization process, looking for synergies in production, purchasing and efficiency that it says could save as much as $220 million to $260 million by 2013.
On the other hand, Crutchfield said some of Massey’s operations have fallen short of expectations. Asked if Alpha might divest some of Massey’s low-performing assets, Crutchfield said only that Alpha plans to continue to assess the value creation of the combined companies during the next 18 months. “It’s been a massive undertaking and the scale and scope is way beyond anything we’ve attempted before,” he said.
In August, Alpha announced a $600 million share repurchase program. So far this year, it has repurchased about 200 million shares of Alpha’s common stock, which were trading today for as much as $27 per share. The price was up by more than 12 percent, with Alpha’s third-quarter results beating analyst expectations.
The company raised its coal shipment guidance for 2012. It expects its Eastern metallurgical coal shipment to range from 23.5 to 26.5 million tons, compared to a previous range of 23 to 26 million tons.
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