Will Arch Coal Finally Rebound This Quarter?

Next Tuesday, Arch Coal (NYSE: ACI  ) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed, knee-jerk reaction to news that turns out to be exactly the wrong move.

Arch Coal has suffered along with the rest of the coal industry as low prices have made it extremely difficult for coal miners to remain profitable. But will rising prices elsewhere in the energy industry finally help the company rebound? Let's take an early look at what's been happening with Arch Coal over the past quarter and what we're likely to see in its quarterly report.

Stats on Arch Coal

 

 

Analyst EPS Estimate

($0.34)

Year-Ago EPS

($0.04)

Revenue Estimate

$912.03 million

Change From Year-Ago Revenue

(12.3%)

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

How will Arch Coal fare this quarter?
Analysts have remained pessimistic in recent months about Arch Coal's earnings prospects, as they've widened their loss estimates for the just-finished quarter by $0.04 per share and now expect full-year 2013 to come in with earnings that are $0.36 per share worse than they believed three months ago. The stock has struggled as well, losing more than a quarter of its value since mid-January.

Arch Coal and its peers have all struggled due to low natural gas prices. With many former coal users in the U.S. having switched to natural gas for cost and environmental reasons, coal companies have seen big sales volume declines domestically. In particular, Arch and Alpha Natural Resources (NYSE: ANR  ) , both of which have extensive operations in the Appalachian region, had to stop production at several mines in order to cut costs. Even with natural gas prices finally starting to rise somewhat, coal has a long way to go before it will return to its former popularity within the U.S. -- if ever.

Fortunately for Arch, natural gas isn't nearly as cheap internationally, and so the company has looked to international markets to sell its coal. With the help of energy transportation specialist Kinder Morgan Energy Partners (NYSE: KMP  ) , Arch Coal has committed to long-term coal export deals to take advantage of strong coal demand in China, India, and other areas of the world where natural gas is either unavailable or too expensive to compete with coal.

Still, conditions are so bad in the industry that even narrower-than-expected losses are cause for celebration. Just yesterday, Peabody Energy soared after announcing its quarterly results, despite its revenue plunging 14% and posting a net loss for the quarter. That bodes well for Arch Coal because the company only has to avoid a worst-case scenario to meet or exceed investors' expectations.

In Arch Coal's report, watch if the company has managed to see continued strength in its production outside Appalachia. Last quarter, record operating performance for its western bituminous coal operations helped cushion the blow for Arch Coal, and if export interest continues to be strong, the company has the potential to post a strong rebound in the future.

Can Arch Coal hold off Peabody Energy? Peabody has 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.

Click here to add Arch Coal to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.


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  • Report this Comment On April 19, 2013, at 11:26 PM, MarkOfBeast wrote:

    This article seriously under-stated the recovery of natural gas price and over-stated what it takes form ACI to turn a profit in stating that "Even with natural gas prices finally starting to rise SOMEWHAT, coal has a LONG WAY to go before it will return to its former popularity within the U.S. -- if ever." (emphasize mine)

    Saying that natural gas price has risen SOMEWHAT is a huge under-statement. Gas price bottomed at $1.89/mmBtu exactly a year ago on April 19, 2012. Today it's $4.41/mmBtu. Going from $1.89/mmBtu to $4.41/mmBtu is not just "SOME WHAT" rise, it's more than double.

    Likewise, the author over-stated what it takes for the coal market to turn around for ACI. For the year 2012, ACI sold 142 million tons of coal for $4.2B revenue, and reported an adjusted loss of $77M for the year after taking off one time items.

    So in reality, ACI was pretty close to the profitability threshold. The $77M adjusted loss was only 1.8% of the sales revenue. In another word, should per ton coal price goes up just 2%, ACI would have seen a break even.

    Or calculate it another way, the$77M loss averaged over 142M tons of coal sold, amounts to only $0.54/ton loss for ACI. Should coal price goes up just $0.54/ton ACI could easily break even and then start to make huge profits.

    For coal price to go up just 2% or go up by just $0.54/ton, is NOT a long way to go. The rest of the world see coal price well into $100+/ton.

    In any case, natural gas price is already up more than double, why is it so hard to project a coal price up maybe 10% or 20%, or maybe $5 per ton. You only need a smal gain in coal price for ACI to begin to turn very profitable.

    Each share of ACI corresponds to roughly 2/3 tons of annual coal production. Consider this number, per share price of ACI is currently way under-valued. If each ton of coal fetches just $5 profit, a rather razor think profit margin, we are talking about $3.33/share annual profit, which at a P/E ratio of 15, justifies ACI at $50 per share.

    Get on board the next super coal rally now.

  • Report this Comment On April 19, 2013, at 11:35 PM, MarkOfBeast wrote:

    The entire so called shale gas revolution is a big hype a Ponzi Scheme. The shale gas bubble is going to pop real soon, destroying a lot of natural gas companies who are already deeply in debts.

    Think about the fundamentals: Coal, petroleum, natural gas are all fossil fuels formed from buried ancient plantations. From geology point of view, coal is the most abundant, petroleum is second, and natural gas, being the lightest of all carbon-hydrates, is the least abundant as far as underground resource is concerned.

    Now when it comes to production from underground. Once again coal is the King. A typical coal mine recovered 70% or higher percentage of the original coal underground. Petroleum is the second. Normally 35% to 40% of original oil in an oil field could be produced.

    The shale gas comes at a remote third place. Geologists estimate that in hydraulic fracturing production of shale wells, only 3% to 5% of the original shale gas trapped between layers of shale will ever be produced. The bulk remains trapped underground.

    So they are trying to make you believe a fairytale that a mere extraction of 3% to 5% of the underground shale resource will some how produce enough natural gas to last for 100 years, while a 70% production of coal underground can only last for 200 years? The math does not work.

    The shale gas revolution is a giant Ponzi Scheme promoted by Wall Street to suck in un-suspected investors. Search on the web for Arthur Berman.

  • Report this Comment On April 24, 2013, at 2:52 AM, jt88stock wrote:

    "Peabody Energy soared after announcing its quarterly results"

    oh really?

    It was pretty short lived

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