Alliance Resource Partners, L.P. (NASDAQ: ARLP) has recently been the focus of an updated coverage report by Stonegate Capital Partners, highlighting a quarter of mixed financial results amidst ongoing market challenges. The report underscores the company's resilience in the face of declining coal prices and reduced transportation revenues, with a notable increase in coal sales volumes offering a silver lining.
For the second quarter of 2025, ARLP reported a 7.7% year-over-year decrease in total revenues, amounting to $547.5 million. This decline was primarily attributed to an 11.3% drop in average coal sales prices and lower transportation revenues. Net income also saw a significant reduction, falling to $59.4 million from $100.2 million in the same quarter the previous year. Factors contributing to this downturn included lower revenues, increased depreciation, and a $25.0 million non-cash impairment on a battery materials equity investment. However, these were partially offset by a $16.6 million increase in the fair value of digital assets.
Despite these challenges, ARLP's Adjusted EBITDA showed a slight sequential increase of 1.2%, reaching $161.9 million. The company has updated its fiscal year 2025 guidance, buoyed by expectations of improved production at Tunnel Ridge, higher sales volumes from the Illinois Basin, cost efficiencies, and strong contracted commitments. This adjustment reflects ARLP's strategic positioning to navigate the current macroeconomic uncertainties.
Coal operations remained a significant part of ARLP's business, with coal sales revenue totaling $485.5 million. Sales volumes increased by 6.8% year-over-year to 8.38 million tons, despite an 11.3% decrease in pricing to $57.92 per ton. The Illinois Basin saw a 15.2% increase in sales volumes, driven by record shipping at Hamilton and River View, while Appalachia volumes fell by 16.8% due to operational issues at Tunnel Ridge.
The royalty business also contributed to the quarter's results, with total royalty revenues reaching $53.1 million. Oil and gas royalties accounted for $35.5 million of this total, with volumes sold increasing by 7.7% year-over-year. However, the average sales price per BOE declined by 9.6% to $40.30. Coal royalty tons sold increased by 10.4%, though average revenue per royalty ton decreased by 3.6% to $3.21.
ARLP's strong liquidity and cash flow position at the end of the quarter, with $499.2 million in total liquidity and $79.0 million in free cash flow, underscores the company's financial stability. The continued distribution of a quarterly cash distribution of $0.60 per unit further highlights ARLP's commitment to shareholder returns. For more detailed information, visit https://www.stonegateinc.com.
Stonegate Capital Partners' valuation of ARLP, using an EV/EBITDA framework, suggests a valuation range of $29.51 to $32.25, with a midpoint of $30.88. This assessment reflects confidence in ARLP's ability to navigate current market challenges and capitalize on future opportunities, making it a noteworthy development for investors and industry observers alike.
