Seeking Alpha
Profile| Send Message|
( followers)  

Coal producer Arch Coal Inc. (NYSE:ACI) announced its operating earnings of 43 cents per share for the second quarter 2010, which is much higher than the Zacks Consensus estimate of 25 cents.

The operating earnings during the second quarter were higher than the year-ago quarter net loss of 11 cents.

GAAP net earnings of the company during the reported quarter were 41 cents per share versus a net loss of 11 cents per share in the second quarter of 2009. The operating net income of the company at the end of second-quarter 2010 was $69.5 million, while the GAAP net income was $66.2 million.

The difference between the GAAP and operating earnings during the quarter was owing to the following one-time items: $5.2 million due to amortization of an acquired sales contract and a benefit of $1.9 million due to tax adjustments.

Total Revenue

Total revenue of Arch Coal at the end of second-quarter 2010 was $764.3 million versus $554.6 million at the end of the year-ago period, reflecting a growth of 37.8%. The actual results of the company were marginally short of the Zacks Consensus Estimate of $767 million.

Operational Update

During the reported quarter Arch Coal sold 38.1 million tons of coal versus 27.4 million tons in the year-ago quarter. Given some rigorous cost-control implemented during the quarter, the cash-cost-per-ton of coal declined to $13.87 from $16.26 in the year-ago quarter, reflecting a cost benefit of 14.7% year over year.

The higher realized price complemented by effective cost control enabled the company to improve its operating profit by $2 per ton during the reported quarter.

Income from operations at the end of second-quarter 2010 was $106.5 million versus $7.3 million in the year-ago period.

Financial Update

Cash and cash equivalents of Arch Coal at the end of the second-quarter 2010 were $56.9 million versus $50.6 million at the end of the year-earlier quarter.

Long-term debt for the company remained level over the last year.

Guidance

In 2010, sales from Arch Coal’s controlled operations are expected to be in the range of 147–155 million tons; the guidance including expected metallurgical coal sales in the 6–7 million ton range.

Adjusted EBITDA of the company is expected to be in the range of $718 million to $790 million. Depreciation, deletion and amortization is expected to range between $372 million to $376 million.

Capital expenditure of the company is expected to remain in the range of $315 million to $335 million.

Arch Coal presently expects its 2010 earnings to range between 98 cents per share and $1.26 per share, up from the previous expectation of 87 cents per share and $1.26 per share. The GAAP guidance includes the impact of non-cash amortization of acquired coal supply agreements.

The company expects non-GAAP earnings for 2010 to range between $1.10 per share and $1.40 per share, up from the previous expectation of $1.00 and $1.40 per share.

Our View

We believe the overall coal market trends are improving gradually and the company is presently well placed to enjoy the benefits. As a major operator in the Powder River Basin, Arch Coal is poised to benefit from the reduction in stockpiles in the region. Also, the company will gain from improving demand for seaborne coal, particularly from the Asia-Pacific market.

Based in St. Louis, Missouri, Arch Coal engages in the production and sale of steam and metallurgical coal. The company also ships coal to domestic and international steel manufacturers as well as international power producers.

Disclosure: No positions

Source: Arch Coal Powers Up