NACCO Industries, Inc. Announces Fourth Quarter And Full Year 2016 Results

 

 

March 2, 2017 - NACCO Industries, Inc. (NC) today announced consolidated net income of $24.1 million, or $3.53 per diluted share, and revenues of $284.2 million for the fourth quarter of 2016 compared with consolidated net income of $18.1 million, or $2.63 per diluted share, and revenues of $286.5 million for the fourth quarter of 2015.

Consolidated net income for the year ended December 31, 2016 was $29.6 million, or $4.32 per diluted share, and revenues were $856.4 million, compared with consolidated net income of $22.0 million, or $3.13 per diluted share, and revenues of $915.9 million for the year ended December 31, 2015.  Full-year 2016 consolidated net income includes a non-cash impairment charge of $17.4 million pre-tax related to the Company's North American Coal subsidiary's Centennial Natural Resources mining operation, which ceased active mining operations at the end of 2015.  Full-year 2015 consolidated net income includes $8.1 million of pre-tax charges related to the cessation of active mining at Centennial.

While Centennial's mining operations have ceased, certain wind-down and reclamation activities continue.  Because Centennial is no longer actively mining, management believes presenting the 2016 and 2015 reported U.S. GAAP financial results on an adjusted basis to exclude Centennial will assist investors' understanding of the performance of the active operations of both NACCO Industries, Inc. and North American Coal.  "Adjusted revenues" and "Adjusted income" in this press release refer to revenues and net income adjusted to exclude Centennial.  For reconciliations from U.S. GAAP results to these adjusted non-GAAP financial results, see pages 14 and 15.

Excluding Centennial, NACCO's 2016 fourth quarter consolidated Adjusted income was $25.9 million, or $3.80 per diluted share, and Adjusted revenues were $284.2 million, compared with consolidated Adjusted income of $22.8 million, or $3.32 per diluted share, and Adjusted revenues of $282.2 million for the fourth quarter of 2015.

NACCO's consolidated Adjusted income for the year ended December 31, 2016, was $46.8 million, or $6.82 per diluted share, and Adjusted revenues were $855.7 million, compared with consolidated Adjusted income of $43.7 million, or $6.22 per diluted share, and Adjusted revenues of $881.3 million for the year ended December 31, 2015.

Consolidated Adjusted EBITDA was $36.7 million and $76.7 million for the three and twelve months ended December 31, 2016, respectively.  Adjusted EBITDA in this press release is provided solely as a supplemental non-GAAP disclosure of operating results as defined on page 12. For a reconciliation of GAAP results to Adjusted EBITDA, also see page 12.

Consolidated Cash Flow and Liquidity Discussion

For the 2016 full year, including Centennial's operations, NACCO generated consolidated cash flow before financing activities of $84.1 million, which was comprised of net cash provided by operating activities of $93.9 million less net cash used for investing activities of $9.8 million. For the 2015 full year, including Centennial's operations, NACCO generated consolidated cash flow before financing activities of $99.7 million, which was comprised of net cash provided by operating activities of $108.0 million less net cash used for investing activities of $8.3 million.

The Company had cash on hand of $80.6 million as of December 31, 2016 compared with $52.5 million as of December 31, 2015.  Debt as of December 31, 2016 was $134.8 million compared with $170.0 million as of December 31, 2015.

Since the inception of a stock repurchase program announced in May 2016, which permits the repurchase of up to $50 million of the Company's outstanding Class A common stock, NACCO has repurchased approximately 109,300 shares for an aggregate purchase price of $6.0 million.  The Company did not repurchase any shares during the fourth quarter of 2016.

North American Coal - Fourth Quarter Results

North American Coal reported net income of $9.3 million and revenues of $25.3 million in the fourth quarter of 2016, compared with net income of $2.2 million and revenues of $26.0 million in the fourth quarter of 2015.  North American Coal reported income before income tax of $1.1 million in the fourth quarter of 2016 compared with a loss before income tax of $3.9 million in the fourth quarter of 2015.  Net income was higher than the income (loss) before income tax in both 2016 and 2015 as a result of income tax benefits primarily attributable to the mix of taxable earnings between profits at entities that benefit from percentage depletion and losses at entities with higher effective income tax rates, including losses related to Centennial.  In addition, in the fourth quarter of 2016, North American Coal realized a $1.2 million tax benefit related to the reversal of a reserve previously established for an uncertain tax position due to favorable resolution of a state tax matter.

North American Coal's Centennial operations reported an operating loss of $2.9 million and nominal revenue in the fourth quarter of 2016 compared with an operating loss of $7.5 million and revenues of $4.4 million in the fourth quarter of 2015.  The reduction in Centennial's revenue was the result of the cessation of mining activities in the fourth quarter of 2015.  Centennial's 2016 operating loss included a $3.3 million pre-tax charge related to the resolution of a legal matter, partially offset by a $1.2 million favorable pre-tax adjustment to its mine reclamation liability and a small gain on sale of assets.  Overall, Centennial's operating loss declined from the prior year fourth quarter as substantially lower operating costs were required to conduct the remaining day-to-day operations of selling equipment, maintaining permits and mine reclamation.

Excluding Centennial, North American Coal reported Adjusted income of $11.1 million, Adjusted income before income tax of $4.0 million and Adjusted revenues of $25.3 million for the fourth quarter of 2016 compared with Adjusted income of $6.9 million, Adjusted income before income tax of $3.7 million and Adjusted revenues of $21.7 million for the fourth quarter of 2015.

The improvement in North American Coal's 2016 Adjusted revenues compared with 2015 was primarily the result of an increase in tons sold at Mississippi Lignite Mining Company, partially offset by a reduction in the price per ton sold due to a lower index-based coal sales price and an increase in reimbursed costs at the North American Mining Company (previously referred to as the limerock mining operations).

The moderate improvement in Adjusted income before income tax during the fourth quarter of 2016 compared with 2015 was primarily attributable to an increase in operating profit at the unconsolidated mining operations as newer mining operations began or increased production.  These increases were mostly offset by lower operating results at Mississippi Lignite Mining Company and increased costs associated with land leases for the Otter Creek reserves.  The decrease in results at Mississippi Lignite Mining Company was primarily attributable to an increase in production costs due in part to the absence of a benefit from the reversal of an accrual related to a leased asset in the fourth quarter of 2015 that did not recur in 2016.

North American Coal - Full Year Results

North American Coal reported net income of $8.2 million and revenues of $111.1 million for the year ended December 31, 2016, compared with net income of $5.6 million and revenues of $148.0 million for the year ended December 31, 2015.  Results in 2016 include a non-cash asset impairment charge of $17.4 million pre-tax to reduce the carrying value of coal land and real estate and assets held for sale at Centennial.  Net income in 2015 includes a pre-tax charge of $7.5 million for Centennial's mine reclamation obligation.

Excluding Centennial, North American Coal reported Adjusted income of $25.4 million and Adjusted revenues of $110.4 million for the year ended December 31, 2016, compared with Adjusted income of $27.3 million and Adjusted revenues of $113.4 million for the year ended December 31, 2015.

North American Coal - Cash Flow Discussion

In 2016, North American Coal, including Centennial's operations, generated cash flow before financing activities of $31.0 million, comprised of net cash provided by operating activities of $34.9 million less net cash used for investing activities of $3.9 million. In 2015, North American Coal, including Centennial's operations, generated cash flow before financing activities of $94.4 million, comprised of net cash provided by operating activities of $95.9 million less net cash used for investing activities of $1.5 million, including a substantial reduction in working capital primarily resulting from Coyote Creek's repayment of its obligation to North American Coal.

North American Coal - Outlook

In 2017, North American Coal expects a significant increase in tons sold and income before income taxes compared with 2016, excluding the effect of the 2016 asset impairment and legal resolution charges.

Results in 2017 are expected to benefit from substantially higher income before tax from the unconsolidated mining operations due to the start of production at Bisti Fuels in early January 2017 and to a full year of income at the Coyote Creek mine.  In addition, in early October 2016, North American Mining Company commenced operations at new limerock quarries for a new customer, which is also expected to contribute to the increase in income from the unconsolidated mining operations.

Bisti Fuels expects to deliver approximately 5.0 to 6.0 million tons of coal per year when the power plant supplied by its customer is operating at anticipated levels.  Coyote Creek expects to deliver between 2.0 to 2.5 million tons of coal annually when its customer's power plant operates at anticipated levels.  In July 2016, Liberty Fuels began delivering coal to its customer for facility testing and commissioning.  Production levels at Liberty Fuels are expected to increase gradually and to build to full production of approximately 4.5 million tons of coal annually beginning in 2023, although the pace of future deliveries will be affected by the timing of the Kemper County Energy Facility reaching full operating capacity.

Income before income taxes is also expected to benefit moderately from fewer expenses related to the Otter Creek reserves and a lower, more moderate, operating loss at Centennial as it manages ongoing mine reclamation obligations.          

Centennial will continue to evaluate strategies to maximize cash flow, including through the sale of mineral reserves and equipment.  The company is evaluating a range of strategies for its Alabama mineral reserves, including holding reserves with substantial unmined coal tons for sale or contract mining when conditions in Alabama and global coal markets improve.  Cash expenditures related to mine reclamation will continue until reclamation is complete, or ownership of, or responsibility for, the mines is transferred.

The improvement in income before income taxes is expected to be partially offset by a significant decrease in royalty and other income as a result of lower anticipated oil and gas royalties in 2017 and a third party completing mining of company-owned reserves in Southern Ohio during 2016.  Lower results from North American Mining's consolidated limerock mining operations due to an anticipated decline in customer requirements is also expected to partially offset improved income before income taxes.  Mississippi Lignite Mining Company's 2017 results are expected to be comparable to 2016, with a decrease in the first half of the year expected to be offset by improvements in the second half.

Cash flow before financing activities is expected to be strong in 2017 but decrease compared with 2016.  Capital expenditures are estimated to be approximately $16 million in 2017.

Over the longer-term, North American Coal continues to expect that the earnings of its unconsolidated operations will increase by approximately 50% from the 2012 level of $45.2 million through the development and maturation of its newer operations and normal escalation of contractual compensation at its existing operations.  Income related to North American Coal's newer mines, including the commencement of production at Bisti Fuels and increased deliveries at Liberty Fuels, are expected to advance progress toward this goal in 2017 and beyond. In recent years, generally low U.S. inflation rates have slowed the rate by which fees at unconsolidated mines have escalated and some newer mines, such as Liberty Fuels, have experienced slower than anticipated growth in customer demand.  As a result, achievement of the goal to increase earnings of the unconsolidated operations by 50% is currently expected to occur in 2020 or 2021, later than previously anticipated, with the timing ultimately dependent on future inflation rates and customer demand.

North American Coal expects to continue its efforts to develop new mining projects and is pursuing opportunities for new or expanded coal mining projects, although future opportunities are likely to be very limited.  In addition, North American Coal continues to pursue additional non-coal mining opportunities, principally in aggregates.