Arch Coal Inc.
) reported second-quarter 2013 loss of 29 cents per share,
narrower than the Zacks Consensus Estimate of a loss of 32 cents.
The loss incurred in the reported quarter was much wider than a
loss of 10 cents per share in the prior-year quarter.
The slackness in the global metallurgical (met) coal market
primarily affected the company's bottom line in the second
On a GAAP basis, the second-quarter loss was 34 cents compared
with a loss of $2.05 per share in the year-ago quarter. The
variance between GAAP and pro forma loss was due to a 10 cent
impact from asset impairment and closure costs, a 1 cent gain
related to the amortization of acquired sales contracts and a 4
cent gain from tax adjustments.
Arch Coal's second-quarter total revenue of $766.3 million
missed the Zacks Consensus Estimate by 17.9% and fell short of
the year-ago revenues by 20.6%. The revenue decline was due to a
steady drop in the average sales price of coal from the company's
Powder River Basin (PRB) and Appalachian mines.
Arch Coal sold 35 million tons of coal in the reported
quarter, up 11.1% year over year due to a 24.3% upswing in sales
at the PRB partially offset by lower sales volume from the
Appalachia and Western Bituminous operations.
In the quarter under review, total operating cost per ton
shrank 17.6% year over year to $21.90 due to successful cost
curtailment efforts at the company's PRB and Appalachia Basins
partially offset by an increase in cost at the Western Bituminous
Despite the stringent cost control measures operating margin
per ton dwindled to 44 cents from $1.87 in the year-ago quarter.
The 13.2% year over year plunge in average sale price in
Appalachia dragged down Arch Coal's profit.
The company's average sales price per ton was $22.34 in the
quarter, down 21.4% year over year. Arch Coal's adjusted earnings
before interest, tax, depreciation and amortization (EBITDA) in
second-quarter 2013 were $110.5 million, reflecting a substantial
year-over-year decline of 38.9%.
Cash and cash equivalents of the company as of Jun 30, 2013,
were $644.2 million versus $784.6 million as of Dec 31, 2012.
Long-term debt as of Jun 30, 2013, fell slightly to $5,078.6
million from $5,085.9 million at year-end 2012.
Operating cash flow in the first six months of 2013 declined
45.3% to $52.0 million from $95.3 million in the first six months
of 2012. As of Jun 30, 2013, the company had available
liquidity of $1.2 billion of which $900 million comprised cash
and other short-term investments. Arch Coal had no borrowings
under its revolving credit facility as of Jun 30.
Arch Coal increased its 2013 sales guidance to the range of
137.7-145.3 million tons of coal from the prior 133-144 million
tons. This includes 130-137 million tons of thermal coal and
7.7-8.3 million tons of met coal. The current softness in the met
coal market compelled the company to idle two mines at the
Cumberland River area. This required Arch Coal to decrease its
met coal sales guidance from the prior range of 8-9 million
The overall outlook however reflects a gradual recovery in the
U.S. thermal coal market. Arch Coal estimates thermal coal usage
to increase by 50 million tons from 2012 levels. The company
expects U.S. coal exports to remain above 100 million tons in
2013 although the pace of shipments will moderate from the first
The company lowered its full-year 2013 capital expenditure
guidance by $20.0 million to the range of $280-$310 million.
Other Coal Company Releases
Peabody Energy Corporation
) reported operating earnings of 33 cents per share in the second
quarter, surpassing the Zacks Consensus Estimate of a loss of 5
cents per share.
CONSOL Energy Inc.
) posted second quarter loss per share of 3 cents, falling
significantly behind the Zacks Consensus Estimate of earnings of
Alpha Natural Resources Inc.
) is expected to release its second quarter results on Aug 2,
2013.The Zacks Consensus Estimate is currently pegged at a loss
of 60 cents.
To sum up
Arch Coal will continue to actively pursue its
cost-containment program to streamline its operations. The
divestiture of the Canyon Fuel Company, LLC subsidiary to Bowie
Resources for $435 million will further aid Arch Coal to meet its
cost saving objectives while keeping production at sustainable
In addition, the rising contraction in coal-to-gas switching
owing to high gas prices will steadily erode the thermal coal
supply glut thereby increasing demand in the domestic market.
Moreover, a bullish steel market, driven by Asia and Latin
America, will boost Arch Coal's profits in the coming years.
However, the still weak price fundamentals for thermal coal
and strict environmental regulations will act as headwinds. Arch
Coal Inc. currently has a short-term Zacks Rank #3 (Hold).
ARCH COAL INC (ACI): Free Stock Analysis
ALPHA NATRL RES (ANR): Free Stock Analysis
PEABODY ENERGY (BTU): Free Stock Analysis
CONSOL ENERGY (CNX): Free Stock Analysis
To read this article on Zacks.com click here.