Arch Coal Lowers 4Q Sales Guidance - Analyst Blog

Arch Coal Inc. ( ACI ) has revised its fourth-quarter and full-year 2013 coal sales guidance. The company has decreased its quarterly sales expectation for thermal as well as metallurgical coal ("met coal").

The downward revision in the thermal coal guidance was primarily due to lower-than-estimated shipment from the Powder River Basin ("PRB") as a result of rail-service issues on the Joint Line.

During third-quarter 2013earnings call Arch Coal had provided its 2013 thermal coal sales volume guidance in the range of 134.0-137.0 millions tons. The company now expects sales volume to decrease in fourth-quarter 2013 from the previous expectation due to the drop in shipment, which will also negatively impact the 2013 coal sales projection. In addition, a drop in shipment volume is expected to increase unit costs, thereby impacting margins.

On the met coal side, Arch Coal has confronted several challenges at its operations in Appalachia owing to unfavorable geologic conditions at the current long wall panel in the Mountain Laurel complex. The company expects its fourth-quarter production to drop 40% from the prior-quarter level. Arch Coal now expects 2013 met coal sales volumes to come in below the low end of the prior guidance of 6.9-7.3 millions tons.

The company has however taken quite a few measures to expand its coal reserves. In Dec 2013, the company started long wall mining techniques at Tygart Valley's Leer mine in northern West Virginia. We believe the production of high quality met coal from the Leer mine will increase from the first quarter of 2014.

As per a World Steel Association report, utilization of steel is expected to increase in 2014 on the back of higher steel demand in the U.S., China, India, Russia, Ukraine, and the Middle East and North African ("MENA") region. The increase in steel demand is due to the growth in the automotive, energy and residential construction sectors, positive impacts of structural reforms, and public non-residential constructions. Subsequently, the demand for met coal is expected to increase in the near term.

We note that Arch Coal continues to book strong contracted sales figures. For 2014, the company has contracted 80% of its sales volumes. Arch Coal has managed to secure multiple agreements with customers, which run through 2018 and assure a steady revenue stream.

Arch Coal currently has a Zacks Rank #3 (Hold). However, some better-ranked stocks in the same sector include Athlon Energy Inc. ( ATHL ), Clayton Williams Energy Inc. ( CWEI ) and Cabot Oil & Gas Corporation ( COG ). While Athlon Energy and Clayton Williams Energy hold a Zacks Rank #1 (Strong Buy), and Cabot Oil & Gas carries a Zacks Rank #2 (Buy).

ARCH COAL INC (ACI): Free Stock Analysis Report

ATHLON ENERGY (ATHL): Free Stock Analysis Report

CABOT OIL & GAS (COG): Free Stock Analysis Report

WILLIAMS(C)ENGY (CWEI): 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 Nasdaq, Inc.

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

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