(NRP) Natural Resource Partners L.P. Beats Expectations – Increases Guidance

Natural Resource Partners L.P. (NRP) announced its second-quarter 2010 operating earnings of 48 cents per unit, surpassing the Zacks Consensus Estimate by 4 cents. The results of the partnership were a dime ahead of the year-ago figure.

Revenue

Total revenue at Natural Resource Partners at the end of the second quarter was $91.4 million versus $79.6 million in the year-ago period, reflecting a growth of 14.9%. The favorable outcome was driven mainly by positive contribution from coal royalty revenues.

The partnership also benefited from higher aggregate royalties and coal processing fees, which offset the reduction in transportation fees and oil and gas royalties.

Reported quarter revenue was higher than the Zacks Consensus Estimate of $87 million.

Quarterly Highlights

Despite a 2% shortfall in coal production over the prior year, total revenue gained on the back of a 23% increase in average coal royalty revenues. Coal royalty revenues were $6.05 per ton versus $4.91 per ton in the year-ago quarter.

Total operating costs and expenses during the quarter improved 3.7% year over year due to higher acquisition related expenses in the prior-year quarter. Also as a percentage of revenue, total operating costs decreased by 563 basis year over year.

Higher revenues and lower operating costs boosted operating income by 24.8% year over year.

The partnership however saw a 20.1% rise in interest expenses, owing to higher debt levels compared with last year.

Financials

Cash provided by operating activities during the quarter was $91.7 million versus $71.7 million in the prior-year quarter.

Cash and cash equivalents as of June 30, 2011 were $145.7 million versus $95.5 million as of December 31, 2010.

Long-term debt of the partnership as of June 30, 2011, was $793.9 million versus $661.1 million as of December 31, 2010.

During the quarter, the partnership issued $250 million senior unsecured notes, and is likely to issue another $50 million of senior notes in the fourth quarter of this year. The partnership utilized the proceeds to repay all of the outstanding borrowings under the revolving credit facility, and will the use the balance for acquisitions.

Looking Forward

Encouraged by the solid second-quarter performance, the partnership revised its guidance for the year with total revenue now expected in the range of $320 million to $345 million of which coal royalty revenue would roughly come in a band of $255 million to $270 million.

Distributable cash flow in 2011 is expected in the range of $225–$245 million while earnings per unit are estimated to come in a band of $1.50 to $1.70, up from the prior view of $1.35 to $1.70.

At the Peer

Peabody Energy Corporation (BTU), which competes with Natural Resource Partners, L.P., announced operating earnings for the second quarter 2011 of 44 cents per share versus 43 cents per share in the year-ago quarter. Earnings at Peabody Energy lagged the Zacks Consensus Estimate by 18 cents.

Peabody’s total revenue of $985.1 million in the second quarter was higher than the Zacks Consensus Estimate of $956 million.  Revenue was also above the year-ago figure of $764.3 million, reflecting a growth of 28.9%, mainly on higher sales price per ton.

Our View

Metallurgical coal production of the partnership accounted for 37% of production and 47% of coal royalty revenues for the first half of 2011. The demand for steam coal and metallurgical coal is steadily rising due to the economic recovery in the United States and other countries around the globe. The partnership only stands to gain from a reinvigorated demand for this source of fossil fuel.

We also appreciate the strategic move of the partnership taken during the quarter to acquire additional reserves in the Deer Run mine in the Illinois Basin. This move allows the partnership to increase production from this basin and meet the increasing demand for coal.

Natural Resource Partners currently retains a Zacks #3 Rank (short-term Hold rating).

Based in Houston, Texas, Natural Resource Partners principally engages in the business of owning and managing mineral reserve properties. The partnership mainly owns coal, aggregate and oil and gas reserves across the United States.

PEABODY ENERGY (BTU): Free Stock Analysis Report

NATURAL RSRC LP (NRP): Free Stock Analysis Report

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