Can James River Coal Earnings Recover?

James River Coal (NASDAQOTH: JRCCQ  ) will release its quarterly report on Friday, and the hard-hit coal producer doesn't look likely to escape the big losses that have plagued it for a long time. With analysts seeing James River Coal earnings stuck in the red for the foreseeable future, investors have to wonder how much longer the company can sustain ongoing losses of this magnitude.

James River Coal shares the same story as many of its coal-mining peers, as low natural gas prices hurt coal demand from utilities at the same time that weaker growth in emerging market nations hurt the metallurgical side of the coal business. Unlike larger companies, though, James River Coal doesn't have as many resources to weather an extended downturn in coal. Let's take an early look at what's been happening with James River Coal over the past quarter and what we're likely to see in its quarterly report.

Stats on James River Coal

Analyst EPS Estimate

($1.33)

Year-Ago EPS

($0.74)

Revenue Estimate

$195.07 million

Change From Year-Ago Revenue

(30%)

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

Can James River Coal earnings ever improve?
Analysts have actually become slightly less pessimistic in recent months about the prospects for James River Coal earnings, narrowing their loss projections by $0.03 per share for the June quarter and $0.14 for the full 2013 year. But expected losses are still enormous compared to its share price, and the stock has gotten hammered, falling another 25% since early May.

Conditions in the coal market continue to be tough, but many companies are adapting to the difficult situation in the industry. Peabody Energy (NYSE: BTU  ) has benefited from its low-cost coal supplies and has taken advantage of lucrative export markets, where natural gas prices are far less competitive and coal much more popular. Peers Arch Coal (NYSE: ACI  ) and CONSOL Energy (NYSE: CNX  ) have done their best to follow Peabody's lead into the export markets, with Arch signing a deal to give it greater export capacity and CONSOL owning its own terminal in Baltimore. By contrast, James River hasn't really pursued exports as an option, leaving it much more exposed to harsher regulation and plentiful natural gas supplies.

Indeed, at this point, James River is working hard simply to keep itself afloat. In May, the stock soared after the company announced a new financing deal that involved trading out more than $243 million of existing convertible debt for $123 million in new debt. Obviously, the reduction in outstanding principal owed is valuable, but James River had to offer much higher interest rates of 10%, compared to 3.125% and 4.5% on the existing notes, and the prices at which the debt is convertible into stock are also lower. Still, the deal bought James River three extra years on some of the notes before maturity.

The big question is whether James River will see improving conditions in coal prices before its debt comes due. Metallurgical coal prices remained much higher than thermal coal, with Energy Information Administration data showing worldwide met coal export prices of about $119 per ton, compared to thermal-coal prices of just $73 per ton. A boost in steel production could send met-coal prices even higher, potentially giving James River the revenue boost it needs to get closer to profitability.

In the James River Coal earnings report, watch closely to see how the recent debt restructuring affected the company's cash situation. With consistent negative cash flow in the past couple of quarters, cash burn will be an important element in determining how long James River can wait for better future conditions.

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Read/Post Comments (4) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 08, 2013, at 8:12 AM, woodNfish wrote:

    I find it interesting that this article completely ignores the Obama government's willful actions to destroy the coal industry which is the main reason these companies are going under.

  • Report this Comment On August 08, 2013, at 10:09 AM, pickandshovel wrote:

    I agree; not a peep about how Nobama created the gas bearing shales and invented horizontal drilling and fracking all just to destroy the coal industry.

  • Report this Comment On August 12, 2013, at 6:18 PM, woodNfish wrote:

    Keep dreaming pickandshovel. Obama has used the EPA to force electricity generators to shut down their coal operated plants or be forced out of business by the high cost of regulation. He even said a few years ago, "Anyone can build a coal plant if they want, but they will go bankrupt in the process." Until Obama began regulating it out of business, coal was the least expensive fuel for electricity generation.

  • Report this Comment On September 14, 2013, at 12:49 PM, bjkcc wrote:

    what our government doesn't understand is the actual impact coal has on us here in eastern Kentucky. Coal severance pays for road devolpment books and food for children in schools. Coal jobs being the only thing pay competitive enough for people here in these mountains to survive. If they want to end coalmining so be it if they can replace 20,000 jobs to keep family's from starving and helpless children from going hungry.Coal mining is a way of life here in eastern ,Ky without it there is simply nothing else every thing will dissipate..

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