Alliance Resource Partners (ARLP) Q3 2026 earnings review
Alliance Resource Partners cuts mining costs, while coal prices fall
Alliance Resource Partners cut its mining costs and grew its oil and gas royalty business while coal prices kept sliding. Revenue rose 6% from a year ago to $603 million, and cash profit attributable to the partnership jumped 26% to $234 million as the Hamilton mine returned to full production and the July purchase of AllDale III and IV lifted royalty volumes. Chief executive Joseph W. Craft III raised the full-year coal shipping outlook, and by our math the plan points to 14% volume growth in the fourth quarter.
| Revenue | $603.0M +5.5% from a year ago |
|---|---|
| Coal expense per ton sold | $35.64 -13.1% from a year ago |
| Oil & gas royalty cash profit (ARLP share) | $43.6M +61.4% from a year ago |
| Full-year coal volume outlook | Raised 0.5M tons middle of the range: 35.0M tons |
⚖️ Verdict: 🟢 Bullish
The story got better because the Illinois Basin cost recovery is now in the numbers, ending the first-half cost overrun as coal expense per ton fell 13% and beat management's second-half target. The 2027 coal order book also expanded to 31.7 million tons. One caution: the AllDale deal and higher earnings came with a $23 million increase across the full-year tax, interest and overhead outlooks, plus $24–$26 million of full-year royalty cash profit going to outside and related-party owners.
The question now is whether lower mining costs and acquired royalty volumes can outrun falling coal contract prices and higher corporate bills in 2027. Optimists see coal prices leveling off as data centers boost power demand; skeptics see older contracts rolling off at lower prices while debt service, taxes and outside partners take a larger cut. Next quarter's first 2027 coal price and cost outlook will tell.
🐂 Bull Case
Mine Investments Cut Coal Costs 13%
Illinois Basin mining costs ran above the full-year plan during the first half of 2026 because an extended equipment move slowed the Hamilton mine. Chief executive Joseph W. Craft III said earlier spending on the mines works now: "The capital we have invested in our operations over the past several years is translating into a lower-cost, more reliable platform."
The third quarter proved his point and ended the first-half cost concern. Alliance Resource Partners, an eastern US coal producer and mineral royalty owner, cut its coal Segment Adjusted EBITDA Expense — mine operating costs excluding overhead and depreciation — by 13.1% from a year ago to $35.64 per ton. That beat the $36.00 second-half target management gave last quarter, and total operating expenses fell 5.8 percentage points of revenue to 56.2%.
- Illinois Basin cost per ton: $31.77, down 10.2% from a year ago and 11.1% from last quarter
- Appalachia cost per ton: $46.25, down 19.9% from a year ago on higher Tunnel Ridge output
- Full-year Illinois Basin cost outlook: narrowed to $33.50–$34.25 per ton, keeping the $33.88 middle of the range inside the prior plan
The company credited the "resumption of longwall production at Hamilton following its extended longwall move" along with lower costs per ton at River View and Tunnel Ridge. Because unit costs dropped faster than coal prices, coal segment cash profit rose 18.6% from a year ago to $186.8 million.
What to watch: fourth-quarter coal expense per ton, which the full-year outlook puts at $36.85 by our math. Holding costs near that mark with no major equipment moves scheduled until 2027 would confirm the lower cost base is durable.
AllDale Purchase Lifts Royalty Cash Flow 61%
The partnership has spent more than $1 billion building an oil and gas royalties business that collects a share of revenue from drilling on its mineral land. On July 1, it closed the $206.2 million purchase of additional stakes in AllDale Minerals III and IV, adding 48,500 net royalty acres across the Permian, Anadarko, Bakken and Haynesville basins.
In the first quarter consolidating those funds, oil and gas royalty volumes rose 61.3% from a year ago to 1.45 million barrels of oil equivalent (BOE), a measure that combines oil and gas on an energy basis. Segment Adjusted EBITDA attributable to ARLP — royalty cash profit after stripping out outside partners' share — climbed 61.4% from a year ago to a record $43.6 million. Craft said, "The acquisition meaningfully increases the segment’s contribution to ARLP’s consolidated cash flows and expands our exposure to natural gas."
What to watch: fourth-quarter royalty volumes against the 1.44 million BOE implied by the full-year outlook by our math. Because the third-quarter jump came from the July purchase, fourth-quarter volumes will show whether drilling on the combined acreage is growing on its own.
2027 Coal Order Book Reaches 31.7 Million Tons
Alliance locks in multi-year coal supply contracts with utilities and export buyers before mining the coal. During the third quarter, the partnership booked 4.2 million tons of new contracted sales through 2028, lifting its committed and priced sales for 2027 by 2.3 million tons to 31.7 million tons.
That leaves the 2027 order book 8.9% ahead of where the 2026 book stood at the same point last year (29.1 million tons), by our math. Export commitments make up 3.7 million tons of the 2026 book and 3.0 million tons for 2027, and strong third-quarter shipments led management to raise the middle of its 2026 coal volume outlook by 0.5 million tons to 35.0 million tons.
What to watch: the 2027 committed tonnage figure in next quarter's fourth-quarter release. Moving from 31.7 million tons toward this year's 35.0 million ton pace would leave very little unsold coal exposed to spot prices next year.
🐻 Bear Case
Older Contracts Still Pull Coal Prices Down
Even as shipping volumes grow, the average price the partnership receives for a ton of coal keeps dropping as high-priced contracts from prior years expire. In the third quarter, total coal sales price fell 8.3% from a year ago to $53.93 per ton, which caused coal sales revenue to dip 1.5% to $504.2 million despite 7.4% volume growth.
Appalachia took the hardest hit, with realized prices down 25.1% from a year ago to $62.35 per ton. The company blamed an "increased sales mix of lower priced Tunnel Ridge volumes and lower sales price per ton at Tunnel Ridge and Mettiki", and it trimmed the middle of its full-year total price outlook by $0.50 to $54.50 per ton while giving no final decision on the future of the Mettiki mine after stopping longwall mining there in January.
What to watch: management's first 2027 coal price per ton outlook next quarter. A range below $54.50 per ton would show that contract roll-offs are still cutting revenue per ton into next year.
AllDale Deal Lifts Debt, Taxes and Outside Shares
Craft highlighted that consolidating AllDale III and IV adds to cash flow, and headline Oil & Gas Royalties revenue jumped 86.4% from a year ago to $59.8 million. However, the partnership bought its stake alongside entities tied to Craft, so it consolidates 100% of the funds' revenue while outside and related-party partners own a large share of the profit.
The third-quarter numbers and updated full-year outlook show the full cost of that structure and its debt financing. Alliance issued a new full-year forecast of $24–$26 million for Adjusted EBITDA attributable to non-controlling interests, which it defines as the "estimated portion of Oil & Gas Royalties segment results attributable to non-controlling interests, including third-party and related-party ownership interests in AllDale Minerals III, AllDale Minerals IV, and Cavalier Minerals JV, LLC".
- Balance sheet debt: $668.9 million ($679.9 million including finance leases), up 48.4% from year-end by our math
- Full-year net interest expense outlook: raised to $53–$55 million from $49–$52 million last quarter
- Full-year income tax expense outlook: raised to $35–$40 million from $22–$24 million last quarter
- Full-year general and administrative overhead outlook: raised to $100–$105 million, up 0.8 percentage points of revenue in Q3 to 4.5%
Those four lines cut into the cash that actually reaches public unitholders. While consolidated royalty cash profit rose, noncontrolling interests took $7.8 million of Adjusted EBITDA in the third quarter alone (up from $2.4 million a year ago), and the combined middle of the tax, interest and overhead outlooks rose by $23 million in one quarter.
What to watch: the final purchase accounting and standalone AllDale disclosures in the third-quarter 10-Q filing. They will show how much of the acquired cash flow remains for public unitholders after debt service, taxes and the related-party share.
Bitcoin Gains and One-Offs Pad Reported Profit
Alliance reported a 46.8% jump in third-quarter net income attributable to the partnership, reaching $139.6 million, or $1.08 per unit. A large part of that increase came from non-operating items rather than coal mining or mineral royalties.
The partnership held 673 bitcoins worth $56.3 million at quarter-end and booked a $16.5 million paper gain on those holdings, alongside a $6.3 million accounting gain from remeasuring its prior stake in AllDale III, a $3.2 million settlement gain, and a $7.3 million loss on oil price derivatives assumed in the AllDale deal. Stripping out those four items leaves net income of $120.8 million by our math — still up 32.2% from a year ago, but $18.8 million below the headline figure.
What to watch: fourth-quarter mark-to-market swings on the 673 bitcoins and the remaining oil swaps covering 75,000 barrels in 2026 and 275,000 barrels in 2027. Because management excludes both from Adjusted EBITDA, headline net income and cash flow will keep moving apart whenever bitcoin or oil prices swing.
👓 Other Themes
Data-Center Demand Still Rests on Existing Plants
Long-term coal demand depends on US utilities delaying plant closures as power use rises. "We believe the fundamentals supporting coal demand continue to build," Craft said, noting that grid bottlenecks slow new power plants and should "extend the runway for the existing coal fleet, with the impact becoming increasingly visible in our customers’ coal burn as data center-driven demand materializes".
💲 Other KPIs
Distributable cash flow — cash profit available for unitholder payouts after maintenance spending — rose 29.4% from a year ago and 27.2% from last quarter. That lifted coverage of the $0.60 per unit quarterly payout to 1.76 times, up from 1.38 times in the second quarter and 1.00 times in the first quarter.
Money owed by customers for delivered coal and royalties jumped 53.3% from $129.7 million at the end of 2025, by our math, while third-quarter revenue grew 5.5% from a year ago. Receivables held near the $200.8 million level reached in the second quarter as higher third-quarter coal shipments and consolidated AllDale revenues kept working capital tied up.
Spending on mine equipment and infrastructure fell 8.9% from a year ago to 9.8% of revenue, by our math, down from $95.7 million in the first quarter and $50.0 million in the second quarter. Lower capital needs lifted third-quarter free cash flow by 31.2% from a year ago to $198.6 million.
🔮 Guidance
Raised. The partnership lifted the middle of its full-year coal volume plan by 0.5 million tons to 35.0 million tons, or 6.2% growth from 2025 by our math, with Illinois Basin at 26.50–27.00 million and Appalachia at 8.00–8.50 million. By our math, that leaves 9.23 million tons for the fourth quarter, up 13.9% from a year ago and near the third quarter's 9.35 million tons.
Cut. Management narrowed the range and lowered the middle by $0.50 to $54.50 per ton (down 7.0% from 2025 by our math), trimming Appalachia's midpoint by $1.75 to $65.25 while nudging the Illinois Basin midpoint up $0.25 to $51.25. By our math, the plan leaves about $53.12 per ton for the fourth quarter, down 7.7% from a year ago.
Unchanged at the $38.00 per ton middle of the range, with Illinois Basin tightened to $33.50–$34.25 and Appalachia to $50.00–$51.00. After the third quarter's drop to $35.64 per ton, the full-year midpoint leaves $36.85 per ton for the fourth quarter by our math, down 8.4% from $40.24 a year ago.
Unchanged in total energy terms at 4.85 million BOE at the middle of the ranges, as a 250,000 MCF raise in natural gas offset a 50,000 barrel trim in oil. By our math, that leaves 1.44 million BOE for the fourth quarter, matching the third quarter's 1.45 million BOE and up 45.8% from a year ago. Segment expense stays at about 14.0% of royalty revenue.
Unchanged across all three lines. Nine-month royalty tons reached 22.50 million after a strong third quarter (8.35 million tons at $3.27 revenue per ton). By our math, the middle of the volume plan leaves 7.35 million royalty tons for the fourth quarter, up 13.1% from 6.50 million a year ago.
Cut. The partnership lowered its full-year capital spending plan by $10 million to a $280 million midpoint. With $204.7 million spent in the first nine months, the outlook leaves $75.3 million for the fourth quarter by our math, up from $59.0 million in the third quarter.
Raised across the cost lines. At the middle of each range, depreciation rose $10 million, overhead rose $5 million (second raise this year: +$5M, $0M, +$5M), net interest rose $3.5 million (+$0M, +$5.5M, +$3.5M), and income taxes jumped $14.5 million (+$8M, $0M, +$14.5M). Non-controlling interest net income moved down $1 million, and management added a new $24–$26 million non-controlling interest Adjusted EBITDA line.
❓ Key Questions
Why did full-year income tax expense jump by $14.5 million?
Management raised the 2026 income tax outlook from $22–$24 million to $35–$40 million after booking $19.0 million in the third quarter alone (including $10.2 million of deferred tax). The release does not explain what triggered the higher tax bill.
What are AllDale's standalone profits and final purchase accounting?
The partnership disclosed $24–$26 million of full-year Adjusted EBITDA for outside and related-party owners in the royalty funds, but the release does not break out AllDale III and IV's standalone revenue or cash flow.
Why are unit buybacks still zero at 1.76x distribution coverage?
Earlier this year management tied unit repurchases to distribution coverage reaching 1.2 to 1.4 times. Coverage hit 1.38 times in the second quarter and 1.76 times in the third, yet the cash flow statement shows no unit buybacks.
What prices are locked in on the 31.7M ton 2027 coal book?
The partnership added 2.3 million tons of 2027 commitments this quarter, but third-quarter realized prices still fell 8.3% from a year ago. Investors need to know whether the 2027 book is priced at or below this year's $54.50 per ton midpoint.
When will management decide the future of the Mettiki mine?
Three quarters after stopping longwall production at Mettiki and taking a $37.8 million write-down, the release still gives no decision on whether the remaining continuous-mining operation will be kept, sold or closed.