May 2, 2017 - NACCO Industries, Inc. (NC) today announced consolidated net income of $5.0 million, or $0.73 per diluted share, and revenues of $168.6 million for the first quarter of 2017 compared with consolidated net income of $2.8 million, or $0.41 per diluted share, and revenues of $173.4 million for the first quarter of 2016.
While North American Coal's Centennial mining operations in Alabama have ceased, certain wind-down and reclamation activities are continuing. Because Centennial no longer has active mines, management believes presenting the 2017 and 2016 reported U.S. GAAP financial results on an adjusted basis to exclude Centennial's results will assist investors' understanding of the performance of the active operations of both NACCO Industries, Inc. and North American Coal. "Adjusted Operating Profit" and "Adjusted income" in this press release refer to operating profit and net income adjusted to exclude Centennial's results. For reconciliations from U.S. GAAP results to these adjusted non-GAAP financial results, see pages 12 and 13.
Excluding Centennial, NACCO's 2017 first quarter consolidated Adjusted income was $5.7 million, or $0.84 per diluted share, compared with consolidated Adjusted income of $4.7 million, or $0.69 per diluted share for the first quarter of 2016.
Consolidated Adjusted EBITDA for the first quarter of 2017 was $12.4 million. Adjusted EBITDA in this press release is provided solely as a supplemental non-GAAP disclosure of operating results as defined on page 10. For a reconciliation of GAAP results to Adjusted EBITDA, also see page 10.
The Company had cash on hand of $56.4 million as of March 31, 2017 compared with $80.6 million as of December 31, 2016 and $35.7 million as of March 31, 2016. Debt as of March 31, 2017 was $158.0 million compared with $134.8 million as of December 31, 2016 and $163.2 million as of March 31, 2016.
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 first quarter of 2017.
North American Coal reported net income of $9.3 million and revenues of $28.3 million in the first quarter of 2017, compared with net income of $8.3 million and revenues of $30.3 million in the first quarter of 2016. North American Coal reported income before income tax of $10.6 million in the first quarter of 2017 compared with income before income tax of $8.9 million in the first quarter of 2016.
Revenues decreased primarily as a result of a decrease in tons sold at Mississippi Lignite Mining Company due to reduced customer requirements. An increase in limerock yards delivered at the North American Mining Company partially offset the decrease in revenues.
Centennial reported an operating loss of $1.2 million and no revenue in the first quarter of 2017, compared with an operating loss of $3.1 million and minimal revenue in the first quarter of 2016. Centennial's operating loss declined from the prior year primarily as a result of lower operating costs, including the absence of a $0.8 million charge related to an increase in Centennial's mine reclamation obligation recognized in the prior year first quarter.
Excluding Centennial, North American Coal reported Adjusted income of $10.1 million and Adjusted income before income tax of $11.9 million for the first quarter of 2017 compared with Adjusted income of $10.2 million and Adjusted income before income tax of $12.1 million for the first quarter of 2016. An increase in operating profit at the unconsolidated mining operations as newer mining operations began or increased production was offset by lower operating results at Mississippi Lignite Mining Company caused by the decrease in tons sold.
North American Coal - Outlook
In 2017, North American Coal expects a significant increase in tons sold and income before income tax compared with 2016, including and excluding the effect of Centennial's 2016 asset impairment and legal resolution charges.
Income before income tax in 2017 is expected to benefit from an increase in earnings from the unconsolidated mining operations due to the start of production at Bisti Fuels on January 1, 2017 and to a full year of production at the Coyote Creek mine. In addition, North American Mining Company has commenced operations at additional 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 between 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 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 tax is also expected to benefit moderately from lower expenses related to the Otter Creek reserves in North Dakota and a lower, more moderate, operating loss at Centennial as it manages ongoing mine reclamation obligations. Centennial will continue to evaluate strategies to optimize 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 tax is expected to be partially offset by a decrease in Mississippi Lignite Mining Company's 2017 results, with a substantial decrease in the first half of the year expected to be partially offset by improvements in the second half. 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 tax. As a result of a new oil and gas royalty agreement finalized in the first quarter of 2017, royalty and other income in 2017 is expected to be comparable to 2016.
Cash flow before financing activities is expected to be strong in 2017 but decrease significantly compared with 2016. Capital expenditures are estimated to be approximately $17 million in 2017, of which $3.4 million was expended in the first quarter of 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.