Walter Energy, Inc. Q1 2010 Earnings Call Transcript

Walter Energy, Inc. Q1 2010 Earnings Call Transcript
By Seeking Alpha ,

Walter Energy, Inc. (WLT)

Q1 2010 Earnings Call Transcript

April 29, 2010 9:00 am ET

Executives

Mark Tubb – VP, IR and Strategic Planning

Joe Leonard – Interim CEO

Lisa Honnold – Interim CFO, SVP and Controller

George Richmond – President and COO, Walter Energy, Inc. & CEO of Jim Walter Resources, Inc.

Analysts

Shneur Gershuni – UBS

Curt Woodworth – Macquarie

Brian Gamble – Simmons

Meredith Bandy – BMO Capital Markets

Jeremy Sussman – Brean Murray, Carret & Co.

Bill Burns – Johnson Rice

Wayne Atwell – Casimir Capital

Dan Mannes – Avondale Partners

Wayne Cooperman – Cobalt Capital

David Khani – FBR Capital Markets

Jim Rollyson – Raymond James

Jen Marcello – Tuohy Brothers Investment Research

Mark Liinamaa – Morgan Stanley

Mark Caruso – Millennium Partners

Garrett Nelson – Davenport & Company

Alex Heidbreder – Millennium

David Lipschitz – CLSA

Presentation

Operator

Welcome to the Walter Energy first quarter 2010 earnings call. All participants are in a listen-only mode. (Operator Instructions).

Now, I will turn the meeting over to Mr. Mark Tubb, Vice President of Investor Relations. Sir you may begin.

Mark Tubb

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Thank you, Audra. Good morning and thank you for joining us for Walter Energy's first quarter 2010 earnings conference call. Today’s call is being webcast live over the Internet and a recording of the call will be archived on our website for up to 30 days.

Joining me today are Walter Energy’s Interim CEO, Joe Leonard; President and COO, George Richmond; Interim CFO, Lisa Honnold; and Senior Vice President and Treasurer, Miles Dearden. Today we will discuss earnings for the first quarter of 2010, the expansion initiatives also announced yesterday, our perspective on the market, and our business outlook. Following our prepared remarks, we will open the call to questions.

We may refer to forward-looking statements made in yesterday's press releases and may make those and other forward-looking statements on today’s call. For more information regarding risks associated with forward-looking statements, please refer to the company’s SEC filings.

At this time, I will turn the call over to Joe.

Joe Leonard

Thank you, Mark and good morning to everyone. As you know, we reported earnings of $0.79 per share for the first quarter, driven primarily by our good execution in our coking coal business and a return to profitability in our coke business. We also announced that we settled approximately 1.7 million tons of coking coal contract at $235 per metric ton FOB at the Port for a six-month period of time starting April 1st. George will go into more detail on these settlements in just a few minutes. Last week, our Board increased our dividend by 25% based on our confidence that we can continue to generate strong cash flows in the future.

Further, we announced a series of initiatives and to growing our national resources and energy platform, including an agreement to acquire HighMount Exploration and Production, this will provide 8.5 billion cubic feet of annual coal bed methane gas production in Alabama where we have current and future mining plans; a non-binding Letter of Intent to lease 52 million tons of Blue Creek Coking Coal Reserves and to acquire the North River steam coal mine from Chevron Mining, Incorporated; a separate Letter of Intent to acquire additional 22 million tons of reserves, continuous to the Chevron reserves in another transaction; and finally, we announced that Walter Minerals will open its Reid School Coking Coal Surface Mine.

We will go into more detail on these transactions in a few minutes, but I also wanted to update you on the status of a couple of other items that we are working on. We are making excellent progress in our search for a permanent CEO. The interest in Walter Energy has been quite high. We've identified several excellent candidates and have started conducting interviews. We expect to narrow that field within the next few weeks and we will continue to work diligently to name someone in that position as soon as possible. We are also moving forward on selecting candidates for some other key executive positions as well.

We continue to make progress in establishing our headquarters at Birmingham and expect to have some of our first employees in the building by early summer.

Now, I'll turn the call over to Lisa to discuss the financial results of the quarter. Lisa?

Lisa Honnold

Thanks, Joe and good morning, everyone. Yesterday, we reported first quarter of 2010 results from continuing operations of $42.7 million or $0.79 per diluted share. First quarter operating income was $71.3 million on revenues of $312 million.

Revenue in the quarter improved primarily on higher metallurgical coke and coking coal sales volume, partially offset by lower realized selling prices for coking coal. Although revenues grew, our operating income for the quarter declined as a result of lower coking coal selling prices and higher production and royalty costs on a per-ton basis at Jim Walter Resources Mine No. 7.

As we mentioned in yesterday's press release, our results for the quarter include $0.06 per diluted share of a net tax charge, which included a $20.7 million charge associated with the elimination of the favorable tax treatment of Medicare Part D subsidies as a result of the passage of the Health Care Reform Act in March. The quarter also included a tax benefit of $17.4 million related to a special credit provided by the federal tax code relating to the sale of coke for the years 2006 through 2009. Neither of these items is expected recur.

Our results for the quarter also include $0.03 per diluted share or $2.5 million pretax of additional depreciation expense due to new accounting rules that affect coal med methane operations such as ours, beginning in 2010. This additional depreciation expense is expected to continue for the remainder of this year.

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