Arch Coal Earnings: An Early Look

With hundreds of companies having already reported quarterly results, we're now in the heart of earnings season. The key to making smart investment decisions with stocks releasing their quarter reports 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.

Let's turn to Arch Coal (NYSE: ACI). The coal company has faced a tough environment for more than a year as natural gas prices remain extremely low, leading some utilities to stop buying coal in favor of the cleaner-burning fuel. 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 on Tuesday.

Stats on Arch Coal

Source: Yahoo Finance.

Can Arch Coal finally get hot?
Analysts aren't enthusiastic about Arch Coal's future, either in this report or for the year to come. They see the company losing money this quarter, next quarter, and throughout 2013, and they've gradually worsened their forecasts over the past three months. The stock has lost another 17% just since early November.

Coal stocks got crushed in 2012 as the bottom fell out of the coal market. With natural gas a cheap and cleaner substitute, electric utilities rushed to convert coal-fired plants to gas-fired counterparts, leaving coal companies in the lurch. Even as Arch has become one of the safest miners in the industry and cut its costs in all its operating regions, creating much cheaper cost-per-ton metrics at $69 per ton than rivals Alpha Natural Resources (NYSE: ANR) ($77 per ton) and James River Coal (NASDAQ: JRCC) ($87 per ton), the No. 2 coal producer in the U.S. nevertheless hasn't been able to get any traction in its share price.

Still, Arch Coal hasn't given up. It's looking to exports to save the company, signing export agreements to quadruple its coal shipments overseas by the end of the decade. Arch isn't alone in that effort, as CONSOL Energy (CNX -0.12%) recently boosted its target for exports to 15 million tons by 2015, but that represent a more modest 50% increase. Given that coal is easier to transport than natural gas, requiring far less infrastructure, it could be some time before natural gas becomes plentiful enough to replace coal overseas.

One concern for investors comes from a recent congressional investigation into companies involved in the Powder River Basin, which includes Arch. Given the lucrative deal that Arch has with Kinder Morgan Energy Partners (NYSE: KMP) to export coal from the region, the government wants to make sure it gets fair royalty revenue from the sale of coal developed from public land. The move could cost $100 million in back royalties for Arch and other coal producers.

Investors need to see signs of progress from Arch in order to feel like they're making a good investment. If they don't, then Arch's stock will likely continue to drop from here.

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