Arch Coal Inc.
) reported pro forma earnings per share of 20 cents in
third-quarter 2012, significantly beating the Zacks Consensus
Estimate of a loss of 15 cents per share. Quarterly results were
also higher than the year-ago earnings of 3 cents per share.
ARCH COAL INC (ACI): Free Stock Analysis
PEABODY ENERGY (BTU): Free Stock Analysis
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Arch Coal's growth in quarterly earnings was driven by a decline
in its cost of operations including reduction in depreciation,
and selling, general and administrative expenses.
The company's third-quarter 2012 GAAP earnings were 22 cents
compared with 4 cents in the prior-year quarter. The variance
between quarterly pro forma and GAAP earnings was due to a gain
of 2 cents for amortization of acquired sales contracts, a penny
gain associated with mine closure and asset impairment, and tax
adjustment charge of a cent.
Arch Coal's total revenue in the reported quarter was $1,087.6
million, down from $1,198.7 million in the year-ago quarter.
Quarterly revenue fell short of the Zacks Consensus Estimate of
The company's third-quarter 2012 revenue decreased primarily due
to a decline in average sales price per ton to $25.57 from $27.87
in the year-ago quarter. This was partially offset by an increase
in shipments in Arch Coal's western operating regions.
Arch Coal sold 37.5 million tons of coal in third-quarter 2012,
down 6% from the year-ago level of 39.9 million tons. This
decrease in sales volume resulted from sales volume decline in
Powder River Basin ("PRB") and Appalachia; partially offset by an
increase in sales volume at Western Bituminous Region.
The company's adjusted earnings before interest, tax,
depreciation and amortization ("EBITDA") in third-quarter 2012
were $256.5 million, up from $211.5 million in the year-ago
Interest expenses were $74.3 million at the end of the third
quarter of 2012 compared with $76.9 million in the prior-year
Cash and cash equivalents of the company as of September 30, 2012
were $550.8 million versus $138.1 million as of December 31,
As of September 30, 2012, Arch Coal's long-term debt was $4.5
billion compared with $3.8 billion as of December 31, 2011.
In the first nine months of 2012, the company's capital
expenditure was $304.0 million compared with $215.9 million in
the prior-year comparable period.
In 2012, Arch Coal expects to sell 129 - 135 million tons of
thermal coal and 7.5 million tons of metallurgical coal.
Selling, general and administrative expenses are expected to be
in the range of $125.0 - $135.0 million in 2012.
Interest expenses are expected to be in the range of $300.0 -
$310.0 million in 2012.
For full-year 2012, the company's capital expenditure will likely
be in the range of $410.0 - $430.0 million.
Arch Coal's primary competitor,
Peabody Energy Corporation
) announced its third-quarter 2012 operating earnings of 51 cents
per share compared with 90 cents per share in the year-ago
quarter. Its quarterly earnings beat the Zacks Consensus Estimate
of 34 cents.
Peabody's third-quarter 2012 revenue was $2,058.8 million versus
$1,980.6 million in the prior-year quarter. The reported revenue
surpassed the Zacks Consensus Estimate of $1,975.0 million.
We have observed that Arch Coal continues to follow several cost
reduction measures including idling of three of its mines in
Appalachia to manage current market demand. The company also
plans to reduce its capital spending on low return units. These
initiatives will enable the company to improve its forthcoming
financial as well as operation results.
In addition, Arch Coal intends to expand and develop its low-cost
asset portfolio by constructing the high-quality Leer
metallurgical coal mine in the region. The company expects Leer
mine to contribute substantially to its top line in future.
However, we believe that these growth opportunities could be
challenged by softened global and U.S. coal demand, which will
influence Arch Coal's financials in the following quarters.
Secondly, increasing substitution of coal with natural gas could
drive down coal prices while impacting the company's margins.
Arch Coal Inc. currently has short-term Zacks #3 Rank (Hold
St. Louis, Missouri-based Arch Coal Inc. engages in the
production and sale of steam and metallurgical coal from surface
and underground mines located in the United States. With a market
capitalization of $1.77 billion, Arch Coal has 7,442 full time