Market Overview

Arch Coal Posts Narrower-than-Expected Loss, Lowers Guidance


Arch Coal Inc. (NYSE: ACI) reported second-quarter 2014 adjusted loss of 46 cents per share, narrower than the Zacks Consensus Estimate of a loss of 48 cents but much wider than the year-ago loss of 29 cents per share.

The deeper loss was due to soft metallurgical market conditions and lower realized prices of the product sold.


On a GAAP basis, the quarterly loss was 46 cents per share versus a loss of 34 cents per share in the prior-year quarter.

Total Revenue

Arch Coal's second-quarter total revenues of $713.8 million missed the Zacks Consensus Estimate by 0.7% and also declined 6.8% from $766.3 million in the year-ago quarter.

Both sales volume contraction and lower average sales price per ton led to the year-over-year decline.

Operational Update

In the quarter under review, Arch Coal's sales volume declined 0.9% year over year to 32.7 million tons. This can be attributed to decreased sales contribution from the Powder River Basin and the Appalachian region, which was partially offset by an increase in sales at Bituminous Thermal operations.

In second-quarter 2014, total operating expenses declined 6.6% year over year to $749.6 million on the back of cost control measures.

Net interest expenses in the reported quarter were $95.9 million, 2.6% higher than the prior year.

Financial Update

Cash and cash equivalents, as of Jun 30, 2014, were $740.2 million versus $911.1 million as of Dec 31, 2013.

Long-term debt, as of Jun 30, 2014, fell to $5,116.4 million from $5,118.0 million as of Dec 31, 2013.

Net cash (used)/ provided by operating activities in the first half of 2014 was ($78.4) million compared with $52.1 million in the prior-year period.

Capital expenditure in the first half of 2014 was $95.8 million, substantially lower than $168.1 million in the year-ago period.


Taking into account the downturn in metallurgical coal demand, Arch Coal reduced its metallurgical sales guidance to the range of 6.3–6.9 million tons for 2014 from the previous range of 6.3–7.3 million tons.

Taking into consideration the ongoing congestion in railroad services, Arch Coal lowered its thermal sales guidance to the band 124–130 million tons in 2014 from the previous range of 124–132 million tons.

Arch Coal also narrowed its 2014 capital expenditure to the range of $170 million to $180 million from the previous range of $180 million to $190 million. The company decided to reduce its capital outlay because of the soft coal market.

Other Coal Releases

Peabody Energy Corporation (NYSE: BTU) reported a loss per share of 28 cents in the second quarter 2014, marginally wider than the Zacks Consensus Estimate of a loss of 27 cents.

CONSOL Energy Inc. (NYSE: CNX) reported pro forma earnings of 7 cents per share for the second quarter of 2014, lagging the Zacks Consensus Estimate of 25 cents by 72%.

Alliance Resource Partners LP (NASDAQ: ARLP) reported second-quarter 2014 earnings of $1.37 per unit, surpassing the Zacks Consensus Estimate of 98 cents.

Our View

The company's move to idle its Cumberland River complex in response to weak global metallurgical coal prices is appreciable.

Higher drawing of coal inventories for power generation during the cold winter months lowered the stockpiles of the utilities. As a result, as utility operators will try to replenish their stockpiles. We believe railroads services will play a vital role here. If the congestion continues it will impact the prospects of the coal miners.

Arch Coal currently has a Zacks Rank #3 (Hold).

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