Arch Coal Q3 Loss Narrower than Expected - Analyst Blog

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Arch Coal Inc. ( ACI ) reported third-quarter 2013 loss of 1 cent per share, much narrower than the Zacks Consensus Estimate of a loss of 30 cents. The company had however reported earnings per share of 20 cents in the prior-year quarter.

The prevailing oversupply in the global metallurgical (met) coal market led to the earnings underperformance.

On a GAAP basis, the third-quarter loss was 61 cents compared with earnings of 22 cents per share in the year-ago quarter. The variance between GAAP and pro forma loss was due to a 95 cent impact from asset impairment and mine closure costs, a 1 cent gain related to the amortization of acquired sales contracts and a 34 cent gain from tax adjustments.

Total Revenue

Arch Coal's third-quarter total revenue of $791.3 million trailed the Zacks Consensus Estimate by 11.7% and year-ago revenues by 18.8%. The revenue decline was attributed to a 23.6% drop in the average sales price per ton of coal.

Operational Update

Arch Coal saw a modest 2.14% year-over-year rise in sales volumes to 38.3 million tons in the reported quarter. Increased sales from Powder River Basin ("PRB") led to the revenue growth. This was partially offset by lower sales volume from the Appalachia and Western Bituminous operations.

In the quarter under review, total operating cost per ton plunged 17.6% year over year to $19.37 due to successful cost containment measures at the company's PRB, Appalachia as well as Western Bituminous basins.

Despite the stringent cost control measures, operating margin per ton shrank 91.8% to 17 cents from the year-ago quarter. The decline resulted from lower operating margins across three basins of Arch Coal.

Arch Coal's adjusted earnings before interest, tax, depreciation and amortization (EBITDA) in third-quarter 2013 were $193.4 million, reflecting a substantial year-over-year decline of 24.6%.

Financial Update

Cash and cash equivalents of the company as of Sep 30, 2013, were $1,133.1 million versus $784.6 million as of Dec 31, 2012.  

Long-term debt as of Sep 30, 2013, fell marginally to $5,074.4 million from $5,085.9 million at year-end 2012.

Operating cash flow in the first nine months of 2013 declined 47.6% to $186.6 million from $356.4 million in the first nine months of 2012.  As of Sep 30, 2013, the company had available liquidity of $1.6 billion of which $1.4 billion comprised cash and other short-term investments thanks to Arch Coal's divestiture of the Canyon Fuel subsidiary in the third quarter.

Guidance

Arch Coal revised its 2013 thermal coal sales guidance to the range of 134-137 million tons from the prior 130-137 million tons. Considering the lingering weakness in the metallurgical coal market, Arch Coal has decreased its met coal shipments guidance to the range of 6.9-7.3 million tons from the prior range of 7.7-8.3 million tons.

The overall outlook however reflects a steady contraction in coal stockpiles. Arch Coal expects stockpiles to reach 150 million tons by the end of 2013 which might pave the way for a more balanced U.S. thermal market.

Arch Coal anticipates coal exports to slow down in the second half of 2013 and estimates export volumes to be in the range 105 million to 110 million tons in 2013. The company tightened its full-year 2013 capital expenditure guidance to the range of $290-$300 million from the previous range of $280-$310 million.

Other Coal Company Releases

Peabody Energy Corp. ( BTU ) reported operating earnings of 5 cents per share in the third quarter, surpassing the Zacks Consensus Estimate of a loss of 3 cents per share.

SunCoke Energy Inc. ( SXC ) posted third quarter earnings per share of 9 cents, beating the Zacks Consensus Estimate of 7 cents.

Alliance Resource Partners, L.P. 's ( ARLP ) reported third quarter 2013 earnings of $1.50 per unit which lagged the Zacks Consensus Estimate of $1.75 by 14.3%.

To Sum Up

Arch Coal will continue pursuing its cost control plans- a key factor in tackling the coal market challenges. Arch Coal's strategic purchase of the Gruffy properties adjacent to its Tygart Valley asset along with the longwall start-up in the Leer mine in Appalachia will bolster its production capabilities by 2013 end.

The long-term prospects for metallurgical coal remain bullish with increased demand from the Asian markets anticipated in the coming years. Europe is expected to become more stable in 2014 which will provide additional avenues for export growth.

However, mounting pressure from environmental regulations will continue to act as a headwind. Arch Coal Inc. currently retains a Zacks Rank #3 (Hold).



ARCH COAL INC (ACI): Free Stock Analysis Report

ALLIANCE RES (ARLP): Free Stock Analysis Report

PEABODY ENERGY (BTU): Free Stock Analysis Report

SUNCOKE ENERGY (SXC): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: ACI , ARLP , BTU , SXC

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