Arch Coal Misses, Suffers Loss

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ACI0.41-0.42
CNX18.61+0.48
BTU2.070.00
ARLP20.83+0.61

Arch Coal Inc. (ACI) reported fourth-quarter 2012 pro forma loss of 42 cents per share, wider than the Zacks Consensus Estimate loss of 14 cents. This also marks a deterioration from the year-ago earnings of 29 cents per share. Lower revenue and increasing operating expenses were responsible for the reported quarter’s debacle.

On a GAAP basis, fourth-quarter loss was $1.39 per share compared with earnings of 33 cents per share in the year-ago quarter. The variance between GAAP and pro forma loss was due to a charge of a penny related to the amortization of acquired sales contracts, favorable tax adjustment of 13 cents, $1.09 charge related to goodwill and other intangible asset impairment, and 2 cents associated with other non-operating expenses.

Arch Coal’s full-year 2012 pro forma loss per share came in at 36 cents per share, wider than the Zacks Consensus Estimate with a loss of 32 cents. This also compares unfavorably with the year-ago earnings per share of $1.07.

The company’s GAAP loss per share was $3.24 in 2012 compared with earnings of 74 cents per share in the year-ago quarter. The difference between GAAP and pro forma loss was due to 12 cents related to the amortization of acquired sales contracts, favorable tax adjustment of $1.23, $2.48 associated with mine closure and asset impairment, $1.64 associated with goodwill and other intangible asset impairment, and an 11 cent associated with other non-operating expenses.

Total Revenue

Arch Coal’s fourth-quarter total revenue of $968.2 million missed the Zacks Consensus Estimate of $1,019 million and decreased 21.2% year over year.

The company’s total revenue for full-year 2012 was $4,159 million, below the Zacks Consensus Estimate of $4,286 million. Annual revenue decreased 3% year over year primarily due to lower sales volume.

Operational Update

Arch Coal sold 36.1 million tons of coal in the reported quarter, down 15.1% year over year due to 14.3%, 28.8% and 2.6% drop in sales at the Powder River Basin, Appalachia and Western Bituminous Region, respectively.

In the quarter under review, total operating cost per ton decreased 2.7% year over year to $22.88 thanks to a decline in operating cost per ton at the Western Bituminous Region.

The company’s average sales price per ton was $24.21 in the quarter, down 5.3% year over year.
 
Arch Coal’s adjusted earnings before interest, tax, depreciation and amortization (:EBITDA) in fourth-quarter 2012 were $71.2 million, reflecting a year-over-year drop of 73.7%.

Financial Update

Cash and cash equivalents of the company as of Dec 31, 2012, were $784.6 million versus $138.1 million as of Dec 31, 2011. The rise in cash balance was primarily attributed to a decline in investment under the company’s inorganic growth plan.

Capital expenditures in 2012 were $395.2 million, down from $540.9 million reported in 2011.

Guidance

In 2013, Arch Coal expects to sell 133–144 million tons of coal in total, including 125–135 million tons of thermal coal and 8–9 million tons of metallurgical coal.

The company expects its full-year 2013 capital expenditure in the range of $330–$360 million.

Other Coal Company Releases

Peabody Energy Corporation (BTU) reported an operating loss of $1.12 per share in the fourth quarter, below the Zacks Consensus Estimate of pro forma earnings of 26 cents per share.

CONSOL Energy Inc. (CNX) posted earnings of 43 cents per share for the fourth quarter, surpassing the Zacks Consensus Estimate of 22 cents.

Alliance Resource Partners, L.P. (ARLP) reported earnings of $1.87 per unit in the fourth quarter, surpassing the Zacks Consensus Estimate of $1.32.

Our View

The coal industry, as a whole, lacked luster in 2012 due to lesser production in the manufacturing sector, increasing usage of alternate energy for electricity generation, a mild winter season and compliance with further government regulations, which increased their operating costs.

Despite these challenges, Arch Coal expects the U.S. power companies to increase output at their coal-fueled power plants in 2013 on the back of a rise in natural gas prices. In addition, we expect the increase in demand for coal primarily from China and some European countries to boost the company’s future performance.

Arch Coal Inc. currently has a short-term Zacks Rank #3 (Hold).

St. Louis-based Arch Coal Inc. engages in 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.

Read the Full Research Report on ACI

Read the Full Research Report on CNX

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