NACCO Industries Faces Threat to Profit Increase Due to Trade War and Economic Instability (Credit Rating Adjustment)
NACCO Industries, Inc. (NYSE: NC), a US-based company active in the Energy sector, specifically in the Coal and Fuel industry, has reported a mixed set of results for Q2 2025. The company recorded an operating cash flow of $5 million in Q1 2025, but a cash outflow of $7.8 million in Q2 2025.
The company's costs of sales have been affected by the ongoing tariff war, with a 28% year-on-year increase to $117,332 million in the six months ended June 30, 2023, and a 35.5% increase to $61,415 million in the three months ended June 30, 2025.
The Contract Mining Segment, operated by North American Mining®, experienced a 3% increase in revenue, but operating profit and adjusted EBITDA decreased due to overproduction, higher operating costs, and increased personnel costs. The Utility Coal Mining segment anticipates a decrease in net income and EBITDA for the full year 2025 due to a reduction in contractually determined per ton sales price.
Despite these challenges, the company's NYSE share price is currently at $38.98/share, 21.1% above the average price in Q1 2025. However, the company has not enacted its share buyback program in Q2 2025 after 7 consecutive quarters in which the company repurchased own stock, with $7.8 million remaining under its $20 million share repurchase program that expires at the end of 2025.
The Minerals and Royalties Segment, which holds significant royalties and mineral rights primarily in the United States, has seen its operating profit and adjusted EBITDA primarily due to higher natural gas prices. The segment for oil and gas minerals and royalties in the US expects an improvement in operating profit in the second half of 2025 and through 2026.
NACCO Industries, Inc. has received a "Hold" rating from an analysis, and the company anticipates net earnings growth, paying a quarterly dividend of $0.2525 per share of Class A and Class B common stock, with the next payment due on September 15, 2025.
The operational challenges at NACCO Industries, Inc. are primarily due to factors other than operational setbacks, including increased tariffs imposed by Trump on US imports and the ongoing trade war. The Altman Z-score of 1.98 indicates grey areas, which typically range from 1.8 to 2.9, reflecting the scenario that the company could likely face solvency problems within a few years if operating results do not align with the long-term growth strategy defined in NACCO's objectives.
Wall Street analysts have issued a 12-month price target of $38.79/share for NACCO Industries, Inc., reflecting an upside of just 2.7% from current levels. Since the last analysis (March 12, 2024), NACCO Industries, Inc. has achieved a change of +29.67% and a total return of +35.34%, including a dividend yield of +5.67%. The positive change in share price followed an upgrade from "Hold" to "Buy" in the previous analysis.
Despite the challenges, NACCO Industries, Inc. continues to anticipate net earnings growth and holds significant royalties and mineral rights primarily in the United States. The Utility Coal Mining segment experiences lower contractual selling prices, despite a 91% increase in revenue due to higher tons delivered. The Contract Mining segment, operated by North American Mining®, is expected to benefit from ongoing geographic and mineral expansion and the signing of new, more favorable long-term contracts, but may not be optimally positioned in a global scenario leading to deglobalization. The Minerals and Royalties segment for oil and gas minerals and royalties in the US expects an improvement in operating profit in the second half of 2025 and through 2026.
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