Arch Coal 4Q Profit Disappoints on Slumped Consumption
Arch Coal (NYSE:ACI) reported higher fourth-quarter profit and sales that fell short of expectations, as much stronger revenues could not fully offset weak coal markets and a drop in consumption.
Improved prices and rebounded operations in the Powder River Basin after flood-related disruptions last year helped boost sales. But acquisition-related costs grew and the uncertain economy and abnormally warm weather weakened coal markets.
Domestic coal consumption fell 5% in 2011, a result of decade-low prices for natural gas and a decrease in power generation, which caused coal stockpiles at U.S. generators to grow to an unprecedented 180 million tons by the end of the year.
Shares of Arch were down nearly 5% to $14.83 Friday morning.
The coal producer reported net income of $70.9 million, or 33 cents a share, compared with a year-earlier $47.8 million, or 29 cents.
Excluding one-time items, the St. Louis, Mo.-based company earned 29 cents, below average analyst estimates of 33 cents in a Thomson Reuters poll.
Revenue for the three months ended Dec. 31 was up 47% to $1.23 billion from $835 million a year ago, missing the Street’s view of $1.3 billion.
“Given current weak coal market conditions, we remain acutely focused on managing our controllable costs, eliminating discretionary capital spending across the organization and delivering additional synergies, including further supply rationalization," Arch chief operating officer John Eaves said in a statement.
A slowdown this year in operations at its Dugout Canyon mine in Utah and a reduction in workforce in eastern Kentucky are expected to reduce volumes by more than 5 million tons in 2012.
However, Arch says pricing in metallurgical coal markets could strengthen as the economy improves and global energy demand rises as projected. Domestic coal exports, which reached 108 million tons in 2011, are expected to grow another 5 million to 10 million tons this year.
Arch boosted its ability to export coal export to Pacific Rim seaborne markets in 2011 through a combination of direct investment, arrangements and expansion overseas.
It secured port capacity on the West Coast through a 38% equity interest in Millennium Bulk Terminals in Washington and a contract with Ridley Terminals in British Columbia.