Thursday was a bad enough day for coal stocks. Today, at least as of noon, it had gotten even worse. And as is so often the case when entire sectors get hot, particularly cyclical ones, the babies often get chucked out with the bathwater. In other words, it probably wouldn't have made too much difference what kind of quarter Arch Coal
Neither volume nor pricing looks especially strong relative to last year, though the numbers don't tell the whole story. Overall tonnage sold dropped 8% from last year's second quarter, but in the interim, the company disposed of some Appalachian coal assets. In what you might call the "core" business, the Powder River Basin (PRB) coal operations, tonnage sold increased 10% from last year, and pricing and margins rose strongly.
The reasons that Arch's stock has fallen on hard times aren't so different from those behind the drops at other energy companies, such as Chesapeake
Not helping matters is that Arch is a little more sensitive to falling prices because it keeps a larger amount of coal out of long-term contracts. For instance, Peabody is about twice as large in terms of quarterly production, but both companies have similar unpriced volume available for 2007. So when prices are weaker, as they are now, folks get nervous about what Arch's future revenue is going to look like.
As I mentioned yesterday, coal's fundamentals are strong -- more and more coal-fired plants go on the books, and the price-per-BTU gap between coal and oil (and natural gas) suggests to me that coal conversion will become increasingly interesting. All that said, Arch is neither the cheapest nor best-run coal company out there, so the primary investment attraction here is if you really want to play a better-than-expected recovery in PRB coal prices.
Fuel up on more Foolishness:
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).