Why Walter Energy's Shares Fell Flat

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of metallurgical coal producer Walter Energy dropped as much as 19% today after updating guidance and lowering its dividend.

So what: Management said that production was up 7% from the first quarter but sales fell 0.3 metric tons to 2.4 metric tons, and inventory piled up, leading to higher costs. But what really hit investors was a decrease in the quarterly dividend from 12.5 cents to $0.01 because of debt amendments.  

Now what: Demand and prices for metallurgical coal are down and Walter needed to amend its credit facility to secure more debt and stay afloat. That's what forced the dividend reduction; it's better to keep the cash and stay alive than pay a dividend all the way into bankruptcy. Walter lost $49.4 million last quarter, and the rise in costs and drop in revenue doesn't bode well for this quarter or for the stock over the long term. I'd consider dumping this stock and getting what I could at this point.

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The article Why Walter Energy's Shares Fell Flat originally appeared on Fool.com.

Fool contributor Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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