March 6, 2019 - NACCO Industries, Inc. (NYSE: NC) today announced consolidated income from continuing operations of $11.0 million, or $1.57 per diluted share, and revenues of $39.1 million for the fourth quarter of 2018 compared with consolidated income from continuing operations of $9.7 million, or $1.40 per diluted share, and revenues of $26.4 million for the fourth quarter of 2017. The prior year fourth quarter included a discrete tax benefit of $4.5 million, or $0.65 per diluted share, related to 2017 tax reform legislation.
As a result of NACCO's spin-off of its housewares-related business in September 2017, the attached financial statements and related year-to-date 2017 financial information in this news release have been reclassified to reflect the housewares business' operating results as discontinued operations.
For the year ended December 31, 2018, the Company reported consolidated income from continuing operations of $34.8 million, or $5.00 per diluted share, and revenues of $135.4 million compared with consolidated income from continuing operations of $28.5 million, or $4.14 per diluted share, and revenues of $104.8 million for the year ended December 31, 2017. NACCO's effective income tax rate from continuing operations for the year ended December 31, 2018 was 17.5%, higher than anticipated due to a change in the mix of earnings, compared with 2.2% for the year ended December 31, 2017. Full-year 2017 consolidated income from continuing operations included a tax benefit of $3.1 million, or $0.45 per diluted share, related to tax reform.
NACCO ended 2018 with consolidated cash on hand of $85.3 million and debt of $11.0 million. At December 31, 2017, NACCO had consolidated cash on hand of $101.6 million and debt of $58.1 million.
For the 2018 full year, NACCO generated cash flow before financing activities from continuing operations of $36.2 million, comprised of net cash provided by operating activities from continuing operations of $54.6 million less net cash used for investing activities from continuing operations of $18.4 million. For the 2017 full year, NACCO generated cash flow before financing activities from continuing operations of $38.3 million, comprised of net cash provided by operating activities from continuing operations of $49.0 million less net cash used for investing activities from continuing operations of $10.7 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 39,000 shares for an aggregate purchase price of $1.3 million since inception of this program, including $1.0 million of stock purchased during the three months ended December 31, 2018.
Fourth-quarter 2018 revenues and income before income tax increased substantially over the fourth quarter of 2017 primarily as a result of a significant improvement at Mississippi Lignite Mining Company. This growth was driven by an increase in tons delivered, due to higher customer requirements, as well as $3.0 million in contractual settlements related to resolution of its customer's tonnage-related payment obligations and coal pricing adjustments. The increase in tons contributed to an overall reduction in the cost per ton of coal delivered. Higher royalty income, due to an increase in the number of wells operated by third parties to extract the Company's natural gas assets in Ohio, as well as the absence of a $1.0 million asset impairment charge taken in 2017 at Centennial also contributed to the higher income before income tax.
NACCO & Other
The comparable loss before income tax at NACCO and Other, which includes the parent company operations and Bellaire Corporation, was primarily due to lower employee-related expenses offset by unfavorable mark-to-market adjustments on invested assets.
NACCO Industries, Inc. Outlook - 2019
In 2019, NACCO expects consolidated income before income tax to increase compared with 2018 and expects an effective income tax rate in the range of 13% to 15%. The actual effective income tax rate could be affected by changes from current estimates in the mix of earnings between entities that benefit from percentage depletion and those that do not, as well as the potential effect of discrete items.
Income before income tax in 2018 includes $3.0 million in contractual settlements at Mississippi Lignite Mining Company and $2.8 million in favorable adjustments to Centennial mine reclamation liabilities. Excluding these favorable 2018 items, 2019 income before income tax is expected to increase significantly compared with the prior year primarily as a result of improved results at Mississippi Lignite Mining Company and higher royalty income.
Mississippi Lignite Mining Company sells lignite at contractually agreed upon prices which are subject to changes in the level of established indices over time. Anticipated changes to these indices are expected to result in an increase in revenue during 2019. In addition, a decline in diesel prices is expected to reduce the cost per ton delivered in 2019 compared with 2018. These factors are expected to contribute to an increase in Mississippi Lignite Mining Company's pre-tax income. If these anticipated changes do not occur or if customer demand does not remain as strong as expected at Mississippi Lignite Mining Company, it could unfavorably affect North American Coal's 2019 earnings expectations significantly.
North American Coal Royalty Company derives income from royalty-based leases under which the lessee makes payments to the Company based on the lessee's sale of natural gas and, to a lesser extent, oil and coal, extracted primarily by third parties. The Company experienced significant increases in royalty income in both 2017 and 2018 compared with prior years, primarily due to the number of gas wells being developed and operated by third parties to extract the Company's Ohio Utica shale oil and gas assets. Royalty income is expected to increase in 2019 compared with 2018 based on the number of wells currently in development and operating in Ohio. Royalty income can fluctuate in response to a number of factors outside of the Company's control, including fluctuations in commodity prices (primarily natural gas), declining production rates, regulatory risks, the Company's lessees' willingness and ability to incur well-development and other operating costs, and changes in the availability and continuing development of infrastructure.
Income from the unconsolidated mining operations in 2019 is expected to be comparable to 2018. An anticipated increase in deliveries at Bisti Fuels and at North American Mining's unconsolidated aggregates mining operations are expected to be offset by an anticipated reduction in coal tons delivered at the Falkirk, Sabine and Coyote Creek mines. North American Mining added new aggregates contracts in 2018 that are expected to contribute to the increase in earnings from the unconsolidated mining operations in 2019.
Capital expenditures are expected to be approximately $23 million in 2019 compared with $20.9 million in 2018 and $15.7 million in 2017. Mississippi Lignite Mining Company's mine plan requires moving into a new mine area which will require increased capital expenditures in 2019 and 2020. The increase in capital expenditures will result in an increase in depreciation in future years that will affect operating profit at that mine. Even with the increased capital expenditures in 2019, cash flow before financing activities is expected to increase significantly over 2018.
One of the Company's core strategies involves activities to protect the Company's existing coal mining operations. The Company works to drive down coal production costs and maximize efficiency and operating capacity at mine locations to help customers with management fee contracts be more competitive. This benefits both customers and North American Coal, as fuel cost is the major driver for power plant dispatch. Increased power plant dispatch drives increased demand for coal by North American Coal's customers.
The Company also believes growth and diversification can come from pursuing opportunities to leverage skills honed in the Company's core mining operations and utilizing the Company's unique, service-based, management-fee business model, when possible. The Company continues to pursue non-coal mining opportunities principally through its North American Mining business. North American Mining has served as a strong growth platform by focusing on the operation and maintenance of draglines for limestone producers. North American Mining will continue to pursue growth in dragline operation and maintenance, while expanding the scope of work provided to customers and focusing on mining a broader range of aggregates and other minerals. In addition, the Company launched a new business called Mitigation Resources of North America to create and sell stream and wetland mitigation credits and provide services to those engaged in permittee-responsible mitigation. The Company also continues to focus on increasing royalty income, principally related to its Ohio Utica shale assets.