Why Krispy Kreme, Arch Coal, and Molycorp Tumbled Today

Tuesday gave investors a break from the record-setting gains that the stock market has seen in recent days, with modest declines in major-market benchmarks reflecting some of the uncertainty about whether stocks have come too far, too fast. Even though the market had its fair share of advancing stocks today, several stocks plunged, with Krispy Kreme (NYSE: KKD  ) , Arch Coal (NYSE: ACI  ) , and Molycorp (NYSE: MCP  ) among the worst-performing stocks in the market today.


Source: Krispy Kreme.

Krispy Kreme plummeted 15% after the donut-maker's earnings report failed to satisfy shareholders. Sales for the company's fiscal first quarter were far below what investors had expected to see, with same-store sales falling 1.5% and net income rising by around 20%. Even worse, Krispy Kreme also reduced its full-year fiscal 2015 earnings guidance by roughly 6%, falling far below analyst projections. Although Krispy Kreme cited what has become the usual litany of weather-related issues, the fact that the company had to reduce its earnings estimates for the entire year points to the possibility that Krispy Kreme's turnaround story isn't going quite as smoothly as it had been in the past.

Source: Flickr/Alison Christine.

Arch Coal dropped 6% after the Environmental Protection Agency announced plans to have coal-fired power plants reduce their carbon emissions by 30%. The move put further pressure on the coal industry generally, and on Arch Coal in particular because of its emphasis on thermal coal for electricity generation. Even before the news, Arch Coal had raised concerns among investors about high debt levels. With the stock having proven unable to sustain a lasting recovery even as natural gas prices have risen -- making coal-fired generation look more attractive from a cost standpoint -- Arch Coal's prospects look even dimmer unless planned efforts from lawmakers friendly to the coal industry prove successful in forestalling the EPA move.

Source: Molycorp.

Molycorp declined 7% even as the rare-earth metals producer got a glimmer of hope from a news story describing the environmental impacts of mining activity in China. A Bloomberg report pointed to planned regulation in China that would impose taxes on producers and also require proof of compliance with environmental restrictions in order to gain access to the export market. Analysts believe the resulting restraint of Chinese supply could raise long-suffering prices of rare-earth metals by 20% or more, and low inventory levels among users could boost Molycorp's sales in the future. Nevertheless, to take full advantage, Molycorp will have to resolve its own production issues to meet what could be greater demand in the future.

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  • Report this Comment On June 04, 2014, at 10:31 AM, Peter405 wrote:

    have you covered your shorts on ACI and ANR yet ?

    ( Can you reference any analysis you did when these stocks were over $30 a few years ago? )

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