What happened

Shares of Arch Coal Inc (NYSE:ARCH) are slumping today, down nearly 15% as of 1:04 p.m. EDT, after the company reported lackluster first-quarter results and a muted outlook for 2018.

So what

Arch Coal earned an adjusted $2.95 per share in the first quarter, which was an improvement from the year-ago period, when it turned in an adjusted profit of $2.82 per share. However, the result still fell well short of analysts' expectations that it would earn $4.42 per share. While the company delivered better-than-expected operating performance at its Leer mine and solid results at its thermal coal business, it also faced weather-related logistical challenges and higher metallurgical coal costs due to issues at its Mount Laurel mine that impacted results. As a result, coal volumes declined, as did margins in the Powder River Basin and from its other thermal coal assets.

Coal in the hands of a miner.

Image source: Getty Images.

Arch Coal said that its Mount Laurel mine again encountered some challenging geology during the first quarter. Because of that, the company reduced its full-year sales outlook for coking coal, which is a key ingredient in making steel. The company now sees sales of between 6.3 million to 6.7 million tons, down from its prior forecast of 6.4 million to 7 million tons. Arch Coal also pulled back on its guidance for sales of thermal coal burned by utilities, which it now sees between 80 million to 84 million tons, versus the prior range of 86 million to 92 million tons, due in part to muted buying activity in the first quarter.

Now what

Arch Coal has one of the best balance sheets in the sector, which has enabled the company to use its cash flow to buy back a whopping 18% of its stock over the past year. However, the coal industry is in a state of decline and doesn't appear likely to recover given growing climate change fears. While Arch's focus going forward is on steelmaking coal, investors will likely be better off buying energy stocks that have a brighter future than by investing in the coal industry.

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