It Wasn't All Bad for Arch Coal in 2012

Shares of Arch Coal (NYSE: ACI  ) are down more than 10% after the company released its fourth-quarter and full-year results. For the fourth quarter, the company turned in an adjusted loss of $0.42 a share, which was much worse than the $0.17 a share that investors were expecting. This is of course a far cry from the $0.29 a share profit the company earned in last year's fourth quarter. 

For the full year, the company lost $0.36 a share, which is quite a big change from last year when it earned a $1.07 a share. Revenue was also down, with Arch reporting fourth-quarter sales of $968.2 million against last year's $1.23 billion. For the full year, revenue was $4.16 billion against $4.29 billion in 2011. Finally, the company saw its tonnage sold falling from 155.3 million tons in 2011 to 140.7 million tons this past year.

As bad as all that sounds, there were some positives for investors to consider. Topping the list is record exports of 13.6 million tons. With the increased switching from coal-fired power plants to those powered by natural gas, it's more important than ever for coal producers to be active in the export market. With exports representing 9.7% of Arch's volumes last year, the report would have been far worse if it weren't for this export revenue.

The company also saw average sales per ton inch up from $25.34 in 2011 up to $25.90 this past year. Unfortunately, it also saw its costs per ton rise from $18.71 in 2011 up to $20.49 a ton last year. The good news on that front is that those costs declined from the third to the fourth quarter, leading me to believe that the company is getting this under control.

Another positive for the company is that its western bituminous region delivered record operating performance in 2012. Both cash margin and operating margin rose over the past year, with cash margin up 15% and operating margins up to 27.6%. The company is also starting to see signs that the coal market might rebound in the second half of 2013, and its proactively responding with increased interest in its western bituminous coal.

While I can understand the market's negative reaction to the report, these bright spots are what investors should be focused on. The growth in exports is an area of particular focus, especially in light of what we're seeing out of Peabody Energy (NYSE: BTU  ) and the voracious demand for coal out of China. The company noted in its earnings release that China set an all-time high for coal imports last year with 289 million tonnes being imported. Not only is import demand from China growing in importance, but India saw its coal imports climb 23% last year and Japan also increased coal imports. 

This will be something investors across the industry should continue to watch closely. You'll likely see exports being highlighted when Alpha Natural Resources (NYSE: ANR  ) reports on Valentine's Day. The company has more export capacity than any U.S. peer at 25 million-30 million tons. Exports drove 44% of the company's revenue in 2011 and are likely to continue to bolster the company's results in 2012. 

This past year wasn't kind to the coal industry, and Arch Coal really took its share of lumps. However, underneath all that soot is a bit of a silver lining with exports saving the day. The miners that have the best strategic positions will be the ones that will dig up the best results as natural gas continues to take over as the fuel of choice for power producers.

With the coal industry in the United States in such a state of flux since, and the arrival of natural gas as a cheaper alternative for energy production, exports are becoming a much bigger part of the domestic coal landscape. Peabody Energy has the deals in place to get its cheaper coal from the Powder River and Illinois Basins to India, China, and the EU. For investors looking to capitalize on a rebound in the U.S. coal market, The Motley Fool has authored a special new premium report detailing exactly why Peabody Energy is perhaps most worthy of your consideration. Don't miss out on this invaluable resource -- simply click here now to claim your copy today.


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