Alpha Natural Resources (NYSE: ANR) will release its quarterly report on Wednesday, and the coal company is expected to deliver even worse news to investors than it has in recent years. Given the reports that we've already seen from peers Peabody Energy (NYSE: BTU) and Arch Coal (NYSE: ACI), it'll be hard for Alpha Natural to demonstrate its competitive superiority to give shareholders a positive surprise, especially in light of recent conditions in the industry.

The coal industry has been one of the hardest-hit sectors of the economy in recent years, as coal producers have suffered from the combination of falling levels of manufacturing activity, leading to less demand for coal as well as cheaper alternatives like natural gas providing would-be buyers with cleaner-burning options at attractive prices. To adapt, Alpha Natural and its peers have tried to focus more on export services, but even abroad the extra costs of shipping make cheap U.S. coal less attractive than seeking nearer sources, such as Peabody's Australian coal reserves. Let's take an early look at what's been happening with Alpha Natural Resources over the past quarter and what we're likely to see in its report.


Photo credit: Flickr/Alison Christine

Stats on Alpha Natural Resources

Analyst EPS Estimate

($0.62)

Year-Ago EPS

($0.19)

Revenue Estimate

$1.18 billion

Change From Year-Ago Revenue

(24.5%)

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance

Can Alpha Natural earnings just get worse in the future?
Analysts haven't painted a rosy picture of Alpha Natural earnings in recent months, widening their fourth-quarter loss estimates by $0.02 per share and seeing 2014 losses about 16% worse than they originally expected. The stock has kept plunging, with losses of 35% since early November.

Alpha Natural's third-quarter earnings results reflect just how tough the coal industry has been recently. The company's adjusted net loss almost quadrupled from the year-ago quarter, as coal revenue fell almost 30%. Even though the company said that it believes that its metallurgical-coal segment might be starting to see gradual improvement and that thermal-coal inventories are falling, Alpha Natural has had to make major cost-cutting moves in order to prevent even worse losses.

In previous economic environments, Alpha Natural's diversified coal base has tended to serve it well. Alpha mines both thermal and metallurgical coal, but the fact that all of its production is based in the U.S. gives Peabody and other companies with mines in strategically located areas a competitive advantage over Alpha.

Yet Alpha Natural is making moves to double-down on coal, hoping that its core business will eventually recover. In December, Alpha sold off a 50% stake in a natural gas joint venture to Rice Energy, in exchange for $100 million in cash and $200 million in Rice stock. Even though the move gives Alpha some useful cash to use to shore up its balance sheet or make further investments, it also prevents Alpha from using the business as a way to move away from the coal business. By contrast, coal peer CONSOL Energy (NYSE: CNX) has gone the other direction, selling off coal assets in order to focus more on its natural-gas exploration and production opportunities.

Unfortunately, the latest signs from the coal industry have been poor. Both Arch and Peabody warned of poor results in advance of their fourth-quarter releases, pointing to volume shortfalls and weather-related disruptions as causing problems. Alpha is likely to see the same problems. Without a bounce in steel-making activity to drive metallurgical coal prices higher or a shift from utilities back to thermal coal use in light of rising natural-gas prices, Alpha Natural won't be able to give investors relief from their recent pain.

In the Alpha Natural earnings report, watch to see how the company's various segments do. Without solid strategic moves to defend itself from the weakness pervading the industry, Alpha Natural could eventually struggle to handle its balance-sheet challenges, and it faces a tough road back to profitability.

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