Arch Coal Tops Estimates

Arch Coal Inc. (ACI - Analyst Report) posted a net income of 16 cents per share for the third quarter of 2009, better than the Zacks Consensus Estimate of 4 cents. It reported net income of 68 cents per share during the same period last year. Operating income declined to $48.3 million from $87.9 million a year ago due to lower price realizations in Central Appalachian region and higher operating costs in all regions. Results include $791,000 of expenses related to the acquisition of the Jacobs Ranch mine. Revenues dipped 20% to $615.0 million. 

In the quarter, Arch Coal sold 29.1 million tons of coal at an average selling price of $20.05 per ton. Sales volume decreased 16.3% year over year but increased 6% sequentially, reflecting larger volumes sold at Western Bituminous and Central Appalachian regions in the overall volume mix. Average selling price fell 1.6% because of lower price realizations. Cash margin per ton fell to $4.30 from $5.79 last year but improved from $3.17 in the previous quarter. Operating margin per ton fell to $1.86 from $3.73 a year ago and rose from 69 cents in the second quarter of 2009. 

Arch Coal sold 21.5 million tons (down 17.9%) of coal of the Powder River Basin at an average selling price of $12.26 per ton (up 9.4%). Western Bituminous region sales volume amounted to 4.6 million tons (down 9.8%) at an average selling price of $29.08 per ton (down 8.7%). Sales volume totaled 3.0 million tons (down 14.3%) in the Central Appalachian region at an average selling price of $62.44 (down 20.9%). 

Although Arch Coal’s top line as well as bottom line tumbled during the first half of the year, management believes that coal markets are in the early stages of recovery after having suffered a record decline in coal consumption during 2009. Going forward, Arch Coal plans to implement its strategy of matching production levels to expected market demand and retain its flexibility to respond to improving coal market fundamentals. 

With expectations of integrating Jacobs Ranch into Black Thunder during the fourth quarter, Arch Coal now expects to sell 121−125 million tons of coal, excluding coal purchased from third parties. It projects to spend $160−$170 million as capex, excluding reserve additions. Arch Coal estimates earnings of 28 to 43 cents per diluted share for the full year 2009.