Arch Coal Inc. ( ACI )
reported pro forma loss of 10 cents per share in second quarter
2012, in contrast to earnings of 44 cents per share in the year-ago
This was primarily due to lower sales volume related to decline
in shipments from Powder River Basin ("PRB") operations. The
reported loss was, however, narrower than the Zacks Consensus
Estimate of a loss of 18 cents per share.
Second quarter 2012 GAAP loss was $2.05 per share versus
earnings of 4 cents in the year-ago quarter.
The variance between quarterly pro forma and GAAP loss was the
result of a gain of 2 cents related to amortization of acquired
sales contracts, tax adjustment gain of $1.15, charges of $2.48
associated with mine closure and asset impairment, goodwill
impairment charges of 55 cents, and other non-operating charges of
Arch's total revenue in the reported quarter was $1,063.5
million, up 8% from $985.5 million in the year-ago quarter.
Quarterly revenue surpassed the Zacks Consensus Estimate of $1,020
Arch Coal sold 31.5 million tons of coal in the reported
quarter, down 14.2% year over year from 36.7 million tons. This
decrease in sales volume was due to a 22.1% year over year decline
in PRB operations and a 15% dip in Western Bituminous Region sales
volume, partially offset by 36.8% year over year growth in
Appalachia mining operations.
Despite a reduction in the coal sales volume in the reported
quarter, total revenue increased on the back of 15.3% year over
year growth in the sales price per ton of
Arch's adjusted earnings before interest, tax, depreciation and
amortization ("EBITDA") in second quarter 2012 were $181 million, a
decline of 27% from $248 million in the year-ago period.
Interest expenses were $77.6 million as of June 30, 2012
compared with $41.5 million in the year-ago period.
Cash and cash equivalents of the company as of June 30, 2012
were $512.5 million versus $138.1 million as of December 31,
As of June 30, 2012, Arch's long term debt was $4.5 billion
compared with $3.8 billion as of December 31, 2011.
Capital expenditure in second quarter 2012 was $202.1 million,
up from $107.7 million reported in the year-ago period.
In 2012, the company expects to sell 135.5-141.5 million tons of
coal, which includes 128 - 134 million tons of thermal coal and 7.5
million tons of metallurgical coal.
Selling, general and administrative ("SG&A") expenses are
expected to be in the range of $125 - $135 million in 2012.
Interest expenses are expected to be in the range of $305 - $315
million in 2012.
The company's capital expenditure in 2012 will likely be in the
range of $410 - $430 million.
Arch Coal's primary competitor, Peabody Energy
Corporation ( BTU ) announced second quarter 2012 earnings of
73 cents per share compared with $1.16 per share in the year-ago
quarter. Its quarterly earnings significantly beat the Zacks
Consensus Estimate of 53 cents.
Peabody's second quarter 2012 revenue was $1,998.2 million
versus $1,980.5 million in the prior-year quarter. The reported
revenue lagged the Zacks Consensus Estimate of $2,067 million.
We have seen that Arch Coal strongly follows cost reduction
measures. In the second quarter of 2012, the company ceased
operations at higher-cost thermal mining complexes and minimized
production at several mines in Appalachia.
In addition, Arch plans to curtail its cost of operations,
decrease headcount, and realign its asset portfolio. This will
enable the company to focus on its higher-margin metallurgical
assets and maintain low-cost thermal coal operations to serve its
domestic and international customers.
We expect higher coal demand in second half of 2012 related to
higher U.S. power demand, reduction in coal-to-gas switching
related to gradual increase in natural gas prices and growing U.S.
coal exports attributable to higher demand from China and
However, we are concerned about declining global steel
production. Steel production volumes have been adversely impacted
owing to lower production and utilization rates in the
manufacturing sector and heavy industries, as evident from the
declines in Europe in June 2012 and the US in July 2012.
Based in St. Louis, Missouri, Arch Coal Inc. engages in the
production and sale of steam and metallurgical coal. The company
also ships coal to domestic and international steel manufacturers
as well as international power producers. Arch Coal Inc. currently
retains a Zacks #3 Rank, which translates into a short-term Hold
ARCH COAL INC (ACI): Free Stock Analysis Report
PEABODY ENERGY (BTU): Free Stock Analysis
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