How Did Walter Energy Dig Itself Such a Deep Hole This Year?
The first half of 2012 is in the rearview mirror, and investors are gearing up for what looks to be an action-packed ending. There are bound to be some big winners -- and more than a few duds -- no matter what happens in the United States and abroad.
Will your favorite stock have its victory lap as we hit the home stretch, or will it get passed by? First-half performances can hold some clues, so let's look to the recent past to find out whether Walter Energy (NYS: WLT) deserves a place in your portfolio going forward.
Walter Energy's stock has not had a good year at all:
Here are a few financial snapshots of its recent performance:
|Market cap||$2.33 billion|
|TTM revenue||$2.78 billion|
|TTM net income||$308 million|
|TTM free cash flow||$116 million|
|MRQ revenue||$632 million|
|MRQ net income||$41 million|
|MRQ free cash flow||($50 million)|
|MRQ revenue / net income year-over-year change||54.5% / (50%)|
|P/E and forward P/E||8.0 / 4.8|
|Price to free cash flow||20.7|
|Motley Fool CAPS rating (out of 5)||**** (Find out more )|
Source: Morningstar. TTM = trailing-12-month. MRQ = most recent quarter.
What the numbers don't tell you
Walter Energy's reported earnings have been underwhelming this year. Its fourth quarter was a whiff on both the top and bottom lines. The first quarter wasn't much better, as an increase in revenue over the year-ago quarter matched with lower net income for the same period. The reasons for that weakness all boil down to a slump in Walter's core business of metallurgical coal.
Fool contributor Sean Williams highlighted the company's weaknesses when it hit a 52-week low earlier this month. Compared with Arch Coal (NYS: ACI) and Consol Energy (NYS: CNX) , Walter's doing better over longer timeframes -- but I doubt shareholders of any major metallurgical coal company are happy this year. Over the past year, the price of coal and the amount of coking coal exported have both fallen, which should help explain why those earnings reports were so disappointing:
Steel producers are also having problems. Both ArcelorMittal (NYS: MT) and United States Steel (NYS: X) have fallen substantially over the past year, moving in near-perfect lockstep with the sinking price of steel:
Mittal's net income, often well over $1 billion quarterly, has been in the dumps, barely managing to break even in its most recent quarter. The company's annual earnings have yet to come close to matching pre-recession highs. Even Chinese steelmakers, once buoyed by high construction demand, are cutting production as weakening construction output becomes a reality.
The coal industry recently witnessed a bankruptcy in its ranks, as Patriot Coal went under last week. Walter Energy is in a much better position, as analysts still anticipate strong earnings next year. As long as Walter can keep paying its debt -- which may become a bit hairy if major slowdowns occur, as the company has $2.3 billion in long-term debt against just $138 million in cash on hand -- it ought to survive to see a much stronger year in 2013. Coal-fired power plants may be on their way out, but that doesn't mean metallurgical coal will be eliminated too.
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The article How Did Walter Energy Dig Itself Such a Deep Hole This Year? originally appeared on Fool.com.Fool contributorAlex Planesholds no financial position in any company mentioned here. Add him onGoogle+or follow him on Twitter,@TMFBiggles, for more news and insights.The Motley Fool owns shares of Arcelor Mittal. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days. The Motley Fool has adisclosure policy.