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Coal producer Alpha Natural Resources (ANR - Snapshot Report) reported a loss of 16 cents per share for the third quarter of 2012, much narrower than the Zacks Consensus Estimate of a loss of 44 cents. The results of the company were however markedly lower than the year-ago earnings of 34 cents.

GAAP loss during the quarter was 21 cents per share versus earnings of 28 cents per share reported in the year-ago quarter.

Total Revenue

Alpha Natural Resource’s total revenue of $1,633.9 million in the third quarter was lower than the Zacks Consensus Estimate of $1,687 million. The results were lower than the year-ago figure of $2,308.7 million, reflecting a decline of 29.2%.

Operational Update

During the reported quarter, total volume of coal sold declined 10.4% year over year to 27.9 million tons. The average realized price per ton of coal during the quarter also decreased substantially by $11.96 to $52.12.

Total cost and expenses in the reported quarter were $1.7 billion versus $2.2 billion in the year-ago quarter. The decline in cost of coal sales, and also a fall in selling, general & administrative expenses brought down the overall cost in the quarter under review.

Financial Update

Cash and cash equivalents of the company as of September 30, 2012 were $342.2 million versus $585.9 million as of December 31, 2011.

Long-term debt as of September 30, 2012, was $2.91 billion, almost flat with $2.92 billion as of December 31, 2011.

Capital expenditure during the first nine months of 2012 was $332.6 million compared with $314.9 million in the comparable period, the prior year.

Cash from operating activities during the first nine months of 2012 was $305.6 million versus $537.2 million in the prior-year period.

Guidance

The company reaffirmed its 2012 coal shipment in the range of 100-115 million tons.

The company retained its 2012 capital expenditure guidance in a range of $450 million to $600 million.

The company expects interest expenses in the range of $190 million to $195 million, which includes the impact of new debts and redemption of debts during October 2012.

Peer Comparison

Alpha Natural Resources Inc.’s peer Arch Coal Inc. (ACI - Analyst Report) reported pro forma earnings per share of 20 cents in third-quarter 2012, significantly beating the Zacks Consensus Estimate of a loss of 15 cents per share. Quarterly results were also higher than the year-ago earnings of 3 cents per share.

Arch Coal’s earnings upsurge was driven by a decline in its cost of operations including reduction in depreciation, and selling, general and administrative expenses.

Arch Coal's total revenue in the reported quarter was $1,087.6 million, down from $1,198.7 million in the year-ago quarter. Quarterly revenue fell short of the Zacks Consensus Estimate of $1,033.0 million.

Our View

The tough market conditions for metallurgical and thermal coal continued to prevail, which in turn cast its adverse impact on the performance of the company.

The overall global seaborne metallurgical coal market scenario is not encouraging and the producers are trimming production to realign supply with demand. Alpha Natural Resources also has responded to the slackness in demand by lowering production of lower quality metallurgical coal by three to four million tons on an annual basis.

On a positive note, Alpha Natural Resources is yet to modify its 2012 shipment volumes and has the capability to increase its metallurgical coal shipments and take advantage of opportunities in this highly cyclical coal market.

Based in Abingdon, Virginia, Alpha Natural Resources Inc. along with its subsidiaries engages in the production and selling of steam and metallurgical coal in the United States. The company was founded in 2002 and has 13,500 full-time employees.

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