Arch Coal Inc. (ACI) reported third-quarter 2014 adjusted loss of 45 cents per share, wider than the Zacks Consensus Estimate of a loss of 41 cents per share and also wider than the year-ago loss of only 1 cent per share.
On a GAAP basis, the quarterly loss was 46 cents per share compared with a loss of 61 cents per share in the prior-year quarter.
Total Revenue
Arch Coal's third-quarter total revenues of $742.2 million surpassed the Zacks Consensus Estimate by 4.4% but declined 6.2% from $791.3 million in the year-ago quarter.
Revenue decreased on account of sales volume contraction offset by higher average sales price per ton.
Operational Update
In the quarter under review, Arch Coal's sales volume declined 5.6% year over year to 35.1 million tons. This can be attributed to decreased sales contribution from the Powder River Basin and Bituminous Thermal operations, which was partially offset by an increase in sales at the Appalachian region.
In third-quarter 2014, total operating expenses declined a substantial 24.2% year over year to $777.5 million on the back of cost control measures.
Net interest expenses in the reported quarter were $96.3 million, 1.4% higher than the prior year.
Financial Update
Cash and cash equivalents, as of Sep 30, 2014, were $795.9 million compared with $911.1 million as of Dec 31, 2013.
Long-term debt, as of Sep 30, 2014, was $5,126.2 million compared with $5,118.0 million as of Dec 31, 2013.
Capital expenditure as of Sep 30, 2014 was $118.7 million, substantially lower than $223.2 million in the year-ago period.
Guidance
Arch Coal has affirmed its metallurgical sales guidance in the range of 6.3–6.9 million tons for 2014.
Arch Coal also maintained its thermal sales guidance in the band 124–130 million tons in 2014.
Arch Coal, however, lowered its 2014 capital expenditure forecast to the range of $160 million to $170 million from the previous range of $170 million to $180 million. The company has decided to reduce its capital outlay because of the soft coal market.
Other Coal Releases
Peabody Energy Corp. (BTU) reported a loss per share of 59 cents in the third quarter 2014, narrower than the Zacks Consensus Estimate of a loss of 66 cents.
CONSOL Energy Inc. (CNX) reported pro forma earnings of 7 cents per share for the third quarter of 2014, lagging the Zacks Consensus Estimate of 25 cents by 72%.
Alliance Resource Partners LP (ARLP) reported third-quarter 2014 earnings of $1.13 per unit, surpassing the Zacks Consensus Estimate of $1.06 per unit.
Our View
The coal companies have been severely affected by stringent environmental regulations discouraging power generation from coal. The declining demand for coal is leading to lower sales volume which is posing a threat to the coal operators. Hardly any relief can be expected from coal prices, which aggravates the situation further.
We believe cost-cutting measures as a way to reduce operating losses are not sustainable in nature. On the positive side, going into the winter months, Arch Coal expects higher seaborne coal demand for power generation.
Arch coal currently has no debt maturities until mid-2018. This provides some financial flexibility to the company to find a way through current coal market downturns.
Arch Coal currently has a Zacks Rank #3 (Hold).
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