Arch Coal Lags Top and Bottom Lines

Coal producer Arch Coal Inc. (ACI - Analyst Report) reported pro forma earnings of 29 cents per share for the fourth quarter of 2011, down 12.1% from 33 cents earned a year ago. However, the earnings were below the Zacks Consensus Estimate of 31 cents.

The fourth quarter 2011 GAAP earnings were 33 cents versus 29 cents in the year-ago quarter.

The difference of 4 cents between pro forma and GAAP earnings was due to the amortization of acquired sales contracts charge of 8 cents, a 1 cent gain related to acquisition and transition costs related to International Coal Group and tax adjustment gains of 3 cents.

Arch Coal’s 2011 pro forma earnings were $1.07 per share compared with $1.14 reported in 2010. However, the earnings fell short of the Zacks Consensus Estimate of $1.16.  

Total Revenue

Arch's total revenue of $1,228.8 million in the fourth quarter missed the Zacks Consensus Estimate of $1,311.0 million. The quarterly revenue improved from the year-ago figure of $835.4 million, reflecting higher sales prices and the acquisition of International Coal Group.

The company’s total revenue for 2011 was $4,285.9 million versus $3,186.3 million in the prior fiscal year, reflecting a growth of 34.5%. However, 2011 revenue fell short of the Zacks Consensus Estimate of $4,392.0 million.

Operational Update

Arch sold about 42.5 million tons of coal in the reported quarter, up 1.2% year over year from 42.0 million tons. Sales volume in fiscal 2011 was 155.3 million tons, down 3.72% from 161.3 million tons in 2010.  

Quarterly sales volume increased on an 84.4% year-over-year improvement in Appalachia mining operations, offset by a 6.94% year-over-year decline in Powder River Basin operations and 7.14% less production from the year-ago quarter at Western Bituminous Region.

In 2011, Arch Coal reported a dip in sales volume due to production decline of 11.02% from Powder River Basin, offset by 4.29% volume increase from Western Bituminous Region and 53.17% rise in Appalachia.   

In fourth quarter 2011, the total operating cost per ton increased 43.73% driven by an operating cost per ton increase in Powder River Basin, Appalachia and Western Bituminous Region.

Arch Coal’s adjusted earnings before interest, tax, depreciation and amortization (EBITDA) in fiscal 2011 were $921.1 million, improving 27.2% from $724.1 million in 2010.

Financial Update

Cash and cash equivalents of the company as of December 31, 2011 were $138.1 million versus $93.6 million as of December 31, 2010.

Capital expenditures as of December 31, 2011 were $540.9 million, up from $314.7 million reported in the year-ago comparable period.

Guidance

Arch Coal is well positioned with strong sales commitments in 2012, developing thermal coal assets and expanding operations in seaborne markets, but these might be partially offset domestic thermal market pressures.

In 2012, the company expects to sell 151–168 million tons of coal in total, including 142–158 million tons of thermal coal and 9–10 million tons of metallurgical coal.

Peer Update

Arch Coal's primary competitor, Peabody Energy Corporation (BTU - Analyst Report), announced earnings of 98 cents per share for the fourth quarter of 2011, missing the Zacks Consensus Estimate of $1.31.

Peabody’s fourth quarter revenue was $2.25 billion versus $1.79 billion in the prior-year quarter. The reported revenue failed to surpass the Zacks Consensus Estimate of $2.31 billion.

Based in St. Louis, Missouri, Arch Coal engages in the 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.

Arch Coal currently has a Zacks #5 Rank (short-term Strong Sell rating).

Read the full analyst report on ACI

Read the full analyst report on BTU