August 2, 2018 - NACCO Industries, Inc. (NYSE: NC) has announced second-quarter 2018 results.  As a result of NACCO's spin-off of its housewares-related businesses in September 2017, the attached financial statements and related 2017 financial information in this news release have been reclassified to reflect the operating results of the housewares-related businesses as discontinued operations.

For the second quarter of 2018, NACCO reported consolidated revenues of $33.7 million and consolidated income from continuing operations of $6.4 million, or $0.92 per diluted share, compared with consolidated revenues of $28.1 million and consolidated income from continuing operations of $7.2 million, or $1.06 per diluted share, for the second quarter of 2017.

For the six months ended June 30, 2018, the Company reported consolidated revenues of $64.9 million and consolidated income from continuing operations of $14.6 million, or $2.10 per diluted share, compared with consolidated revenues of $56.4 million and consolidated income from continuing operations of $15.5 million, or $2.26 per diluted share, for the six months ended June 30, 2017.  NACCO's effective income tax rate was 12.0% for the six months ended June 30, 2018 compared with 11.1% for the six months ended June 30, 2017.

NACCO's consolidated Adjusted EBITDA from continuing operations for the second quarter of 2018 and the trailing twelve months ended June 30, 2018 was $11.8 million and $45.3 million, respectively.  Adjusted EBITDA in this press release is provided solely as a supplemental non-GAAP disclosure of operating results as defined in the reconciliation of GAAP results to Adjusted EBITDA on page 7.

NACCO ended the second quarter of 2018 with consolidated cash on hand of $80.0 million and debt of $28.0 million.  At December 31, 2017, NACCO had consolidated cash on hand of $101.6 million and debt of $58.1 million.

In February 2018, NACCO's Board of Directors authorized a stock buyback program to purchase up to $25 million of the Company's outstanding Class A common stock through December 31, 2019.  The Company repurchased approximately 1,700 shares for an aggregate purchase price of $0.1 million during the second quarter of 2018 and since inception of this program.

North American Coal reported income before income tax of $9.4 million and revenues of $33.7 million in the second quarter of 2018, compared with income before income tax of $10.3 million and revenues of $28.1 million in the second quarter of 2017.

Revenues increased primarily as a result of an increase in tons sold at Mississippi Lignite Mining Company due to higher customer requirements and an increase in reimbursed costs at North American Mining's consolidated operations.

The decrease in second-quarter 2018 income before income tax compared with the prior year quarter was primarily attributable to the absence of $2.6 million of gains on sales of assets in the second quarter of 2017.  Excluding the effect of the gains, income before income tax increased in 2018 over 2017 mainly as a result of an increase in earnings at the unconsolidated operations and an improvement in Centennial's operating results.  These improvements were partially offset by lower income at Mississippi Lignite Mining Company as a result of an increase in cost per ton delivered, principally driven by higher repairs and maintenance, and an increase in operating expenses due to higher professional fees.

The increase in earnings at the unconsolidated operations was mainly due to an increase in tons delivered, as well as higher compensation at Liberty Fuels during the mine reclamation period.

For the six months ended June 30, 2018, North American Coal reported income before income tax of $20.3 million and revenues of $64.9 million compared with income before income tax of $20.9 million and revenues of $56.4 million for the six months ended June 30, 2017.

NACCO & Other - Results

NACCO and Other, which includes the parent company operations and Bellaire Corporation, reported a loss from continuing operations before income tax of $1.8 million in the second quarter of 2018 compared with a loss from continuing operations before income tax of $1.7 million in the second quarter of 2017.

For the six months ended June 30, 2018, NACCO and Other reported a loss from continuing operations before income tax of $3.7 million compared with a loss from continuing operations before income tax of $3.5 million in 2017.

Consolidated Outlook

In the second half of 2018, NACCO expects consolidated income before income tax from continuing operations to increase substantially compared with the second half of 2017, resulting in an overall moderate increase in 2018 full year income before income tax from continuing operations over 2017.  The Company expects an overall effective income tax rate in the range of 9% - 12% for 2018, compared with an effective income tax rate of 2.2% in 2017.  In 2017, the Company applied the intraperiod tax allocation rules to allocate the provision for income taxes between continuing operations and discontinued operations, which produced results in 2017 that were neither comparable nor indicative of future expectations.  As a result of the increase in the effective income tax rate, consolidated income from continuing operations in the second half of 2018 is expected to be comparable to the second half of 2017 and be down modestly for the 2018 full year compared with 2017.

Income before income tax in the second half of 2017 included $2.1 million of gains on sales of assets.  Excluding these gains, NACCO expects income before income tax in the second half of 2018 to increase compared with the prior year primarily due to improved income at the consolidated operations, lower operating expenses mainly related to lower employee-related costs and reduced interest expense.  These improvements are expected to be partially offset by a decrease in royalty and other income.   Royalties on oil, gas and coal extracted by third parties are subject to changes in market forces and the activities of third parties, making it difficult to forecast whether recent high levels of income will continue.

At the consolidated operations, Mississippi Lignite Mining Company's pre-tax income in the second half of 2018 is expected to increase substantially over the second half of 2017 and the first half of 2018, primarily as a result of a reduction in the cost per ton of coal delivered during the second half of 2018.  In general, cost per ton delivered is lowest when the power plant requires a consistently high level of coal deliveries, primarily because costs are spread over more tons.  Historically, periods of reduced or fluctuating deliveries, such as during planned or unplanned power plant outages or periods of fluctuating demand for electricity generated by the plant, have adversely affected Mississippi Lignite Mining Company's tons delivered, resulting in an increase in cost per ton delivered and reduced profitability.  Customer demand in the second half of 2018 is expected to return to higher levels because fewer plant outage days are expected compared with the prior year.  Improved income in the second half of the year, primarily in the third quarter, is expected to offset the lower income in the first half of 2018 resulting in full-year 2018 income at Mississippi Lignite Mining Company that is comparable to 2017.  If customer demand does not improve as expected at Mississippi Lignite Mining Company, it could unfavorably affect North American Coal's 2018 earnings significantly.

Centennial's pre-tax loss in the second half of 2018 is expected to be comparable to 2017, excluding a $2.8 million reduction in its mine reclamation liability and a $1.0 million asset impairment charge realized in the prior year fourth quarter.  Centennial will continue to evaluate strategies to optimize cash flow, including the continued assessment of a range of strategies for its remaining Alabama mineral reserves, including holding reserves with substantial unmined coal tons for sale or contract mining when conditions permit.  Cash expenditures related to mine reclamation will continue until reclamation is complete, or ownership of, or responsibility for, the remaining mines is transferred.

Earnings from the unconsolidated operations in the second half of 2018 are expected to be comparable to the second half of 2017.  An increase in tons delivered at Bisti Fuels as a result of the completion of work to install additional environmental controls at the customer's power plant and higher compensation at Liberty Fuels for mine closure work is expected to be offset by fewer tons delivered at other unconsolidated operations.  Production at Bisti Fuels is anticipated to be 5 million to 6 million tons of coal per year when the plant is operating at expected levels, which is currently anticipated to occur in 2019.

Cash flow before financing activities is expected to decrease substantially in the second half of 2018 compared with the second half of 2017, resulting in an overall decrease in cash flow before financing activities for the 2018 full year.  Capital expenditures are expected to be up to approximately $31 million in 2018, of which $9.1 million was expended in the first half of 2018.  Planned expenditures at Mississippi Lignite Mining Company and North American Mining include expenditures for new and replacement equipment and land required for future mining.  The timing and amount of capital expenditures may vary based on further refinement of capital needs and mine plans.

While the current regulatory environment for development of new coal projects has improved, continued low natural gas prices and growth in renewable energy sources, such as solar and wind, could unfavorably affect the amount of electricity generation attributable to coal-fired power plants over the longer term.  North American Coal continues to seek opportunities for new 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 related to its North American Mining business and elsewhere where it might provide value-added services.  During the second quarter of 2018, North American Mining signed two new contracts with limestone customers.  Operations under one contract are expected to commence in the fourth quarter of 2018, while operations under the second contract are expected to commence in early 2019. 

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