Units of coal miner Alliance Resource Partners (NASDAQ:ARLP) were lower by as much as 10.5% today. That said, by roughly 3:30 p.m. EDT the master limited partnership (MLP) had pared the loss to just 7% or so. The main driver here was earnings, but the news wasn’t all bad — just more bad than good.
Revenues in the first quarter of 2021 were lower by roughly 9% year over year, driven by a nearly 6% volume decline and a 3% drop in pricing. On the smaller, but growing, royalties side of the business, revenues were off about 1%, with a notable drop in its oil and natural gas results. In other words, not much was working for Alliance Resource Partners in the first quarter. However, one-time charges in the year-ago period allowed the partnership to shift from a unit loss of $1.14 in the first quarter of 2020 to a profit of $0.19 per unit in the first quarter of 2021.
So while the partnership’s performance wasn’t exactly great in the quarter, the bottom line showed material improvement. Moreover, the markets in which it operates have begun to stabilize and even improve. That suggests things could get better as the year progresses. Meanwhile, some of the coal sales shortfall was due to delayed shipments that are likely to be made up later in the year. So there were very clear positives to go along with the negatives.
Perhaps the more important piece of information, though, was that Alliance Resource Partners reinstated its quarterly distribution. But even here the picture was mixed given that the payment is just a quarter of what it was prior to its suspension in early 2020. The quarterly distribution of $0.10 per unit is just 30% of the free cash flow management expects to generate, so it is likely to hold up even if there are further headwinds. Yet it is likely that investors were hoping for more, given that master limited partnerships are specifically designed to pass income on to unitholders.
So, when you step back, it’s understandable that investors were downbeat today and, frankly, all but the most aggressive long-term investors would probably be better off looking outside the coal sector for investments right now. Although coal isn’t going away overnight, this is a high-risk space right now, and its long-term outlook is cloudy at best.
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