Walter Industries Inc. (WLT) filed Quarterly Report for the period ended 2009-09-30.
Walter Energy based in Tampa Fla. formerly Walter Industries Inc. is a leading U.S. producer and exporter of premium metallurgical coal for the global steel industry and also produces steam coal and industrial coal metallurgical coke and coal bed methane gas. It also produces steam coal and industrial coal metallurgical coke and coal bed methane gas. The Company through its operating segments offers products and services including coal and natural gas metallurgical coke mortgage financing and home construction. Its segments include Natural Resources Sloss Financing Homebuilding and Other. The Natural Resources segment consists primarily of Jim Walter Resources Inc. Tuscaloosa Resources Inc. Taft Coal Sales & Associates and United Land Corporation. The Financing segment includes Walter Mortgage Company services non-conforming installment notes and loans that are secured by mortgages and liens. The Homebuilding segment includes Jim Walter Homes Inc. which is Walter Industries Inc. has a market cap of $3.46 billion; its shares were traded at around $65.32 with a P/E ratio of 15.9 and P/S ratio of 2.3. The dividend yield of Walter Industries Inc. stocks is 0.7%. Walter Industries Inc. had an annual average earning growth of 2.7% over the past 10 years.
Highlight of Business Operations:
Our income from continuing operations for the three months ended September 30, 2009 was $24.4 million, or $0.45 per diluted share, which compares to $71.3 million, or $1.26 per diluted share, for the three months ended September 30, 2008. In the three months ended September 30, 2009, net sales and revenues decreased $30.5 million and operating income decreased $67.2 million versus the same period in 2008. These decreases were primarily due to lower sales volumes and sales prices of metallurgical coke in the Walter Coke segment in addition to lower average sales prices of hard coking coal and natural gas within the Underground Mining segment.
•Approximately 1.9 million tons of hard coking coal were sold in the third quarter of 2009 at an average price of $121.66 per short ton. The third quarter was a record period for coking coal sales volumes as sales volumes improved each month in the period, ending with 740,000 tons sold in the month of September. Although worldwide demand for metallurgical coal is down, Chinese demand for metallurgical coal has increased significantly and has largely brought worldwide supply and demand into equilibrium. While we expect our customer focus to remain in South America and Europe, we are seeing opportunities in the spot market for sales outside of our traditional customer base, with prices above the $129.00 per metric ton Australian benchmark. For example, we had one spot shipment during the quarter, a vessel delivered to a customer in Asia at a price in excess of the Australian benchmark. Seaborne metallurgical coal market demand conditions are largely dependent on continued demand from China for metallurgical coal. •The third quarter 2009 hard coking coal average price per short ton of $121.66 included 79,000 short tons (or approximately 72,000 metric tons) of our 2008/2009 contracted $315.00 per metric ton carryover pricing. Prior to the third quarter, we had approximately 1.5 million metric tons of 2008/2009 contracted $315 per metric ton coal remaining to ship. We have now resolved 640,000 metric tons of the outstanding carryover volumes, with delivery of approximately 115,000 metric tons expected in the fourth quarter 2009 and delivery of 453,000 metric tons expected in 2010. In addition to the 453,000 metric tons priced at $315.00 per metric ton expected in 2010, we expect to deliver approximately 2.2 million metric tons in 2010 at average contract prices of $129.00 per metric ton. The remaining 2010 expected sales volume is unpriced. •Our sales volume expectation for the fourth quarter of 2009 ranges from 1.6 million to 1.7 million tons and our forecasted fourth quarter operating income per ton ranges from $27.00 to $33.00. Fourth quarter ranges reflect a strengthening in demand and contract pricing opportunities. Results could improve significantly if we are able to resolve discussions with our customers regarding approximately 860,000 tons remaining at the $315.00 per metric ton carryover pricing. •We ended the quarter with 470,000 tons in inventory, which is in line with our normal operating level. However, we expect inventories to decline further in the fourth quarter of 2009 as we expect to sell more coal than we produce. •Coking coal production totaled 1.5 million tons in the third quarter of 2009, up approximately 23% from the third quarter of 2008. With strengthening demand during the third quarter of 2009, we increased production over the prior quarter. Production costs averaged $60.60 per ton for the quarter ended September 30, 2009 as compared to $68.99 for the third quarter of 2008 as a result of increased production volume, offset in part, by higher labor and depreciation costs. Production costs are expected to increase to approximately $65.00 to $70.00 per ton in the fourth quarter of 2009 due to decreased volumes and a higher ratio of continuous miner tons to longwall tons due to anticipated longwall moves. •Although production costs are expected to increase in the fourth quarter of 2009, operating margins will be positively impacted by a higher average selling price anticipated for the fourth quarter of 2009, as compared to the third quarter of 2009. •We recently finalized our long-range mining plan and expect to produce approximately 8.0 million tons of premium hard coking coal in 2010, highlighted by incremental production from our Mine No. 7 East expansion. We also expect to increase coking coal production to between 8.5 and 9.0 million tons in 2011 and between 9.0 and 9.5 million tons in 2012. 21
•Freight costs on metallurgical coal sales during the third quarter averaged approximately $14.00 per ton, in line with expectations for 2009, which are projected to average between $14.00 and $15.00 per ton. Royalties expenses were 5.7% of hard coking coal revenues for the third quarter of 2009 but are expected to return to our normal average of 7.0% to 8.0% of hard coking coal revenues in the fourth quarter of 2009 now that production for Mine No. 7's Southwest A panel has been completed. •The natural gas business sold 1.5 billion cubic feet of natural gas at an average price of $3.29 per thousand cubic feet in the third quarter of 2009 versus 1.7 billion cubic feet at $8.69 per thousand cubic feet in the third quarter of 2008. Pricing forecasts for 2010 have recently strengthened. In October 2009, we hedged the sale of approximately 24% of our full year 2010 production, or 1.5 bcf, at $6.20 per thousand cubic feet. •We will continue to evaluate expansion opportunities, potential acquisitions and further investments in coal and natural gas. Surface Mining
•During the third quarter of 2009, the surface mining operations produced 359,000 tons of steam and industrial coal and sold 302,000 tons at an average operating income of $17.38 per ton. The average selling price improved $17.66 per ton versus the third quarter of 2008 primarily on new contracts that began in January 2009. •In the fourth quarter of 2009, we expect to sell between 300,000 and 330,000 tons at an average operating income of between $12.00 to $17.00 per ton, as approximately 90 percent of expected 2009 production has been profitably priced with fixed-price contracts. Walter Coke
•Walter Coke returned to near-profitability in the third quarter of 2009 recording an operating loss of $0.2 million. The results were driven by improvements in customer demand for metallurgical coke within the domestic steel industry. •Walter Coke sold 38,478 tons of metallurgical coke at an average price of $361.95 per ton in the third quarter of 2009. In the prior year period, we sold 101,077 tons at $397.20 per ton. The decline in average selling price and sales volume reflect lower domestic steel capacity utilization versus the prior year period. •Walter Coke is expected to return to profitability in the fourth quarter of 2009 as a result of increased production to 80 coking ovens per day, supported by increased orders late in the third quarter of 2009. In the fourth quarter of 2009, metallurgical coke sales are expected to range between 78,000 to 86,000 tons at an average operating income per ton of between $19.00 and $24.00. Summary of Third Quarter Consolidated Results of Continuing Operations
Underground Mining, which includes the operations of Jim Walter Resources and Blue Creek Coal Sales, reported revenues of $233.1 million in the third quarter of 2009, a decrease of $18.3 million compared to the same period in 2008. The decrease in revenues was primarily due to a 23.9% and 62.1% decrease in the average selling price of coal and natural gas, respectively, partially offset by a 27.9% increase in sales volumes, as compared to the same period in 2008 as shown in the table below:
WLT is in the portfolios of John Keeley of Keeley Fund Management.
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