Coal miner Arch Coal Inc. (ACI) is scheduled to release its first quarter 2011 earnings on April 26, 2011. The current Zacks Consensus Estimate for the first quarter is 33 cents per share, which represents a substantial rise from the year-ago quarter.
Arch Coal has lagged the Zacks Consensus Estimates in three out of four quarters of 2010 with earnings showing a negative surprise of 29.8% in the final quarter of 2010 (a trailing four-quarter average of -5.09%).
The company is expected to deliver slightly disappointing results in the first quarter of 2011 as well, impacted by the idling of the longwall at Mountain Laurel, as announced by the company on January 11, 2011. However, the outlook for Arch’s 2011 earnings remains robust with the company guiding earnings between $ 2.00 and $ 2.50 per share.
Fourth Quarter Recap
Arch’s fourth-quarter 2010 earnings (excluding special items) of 33 cents per share was below the Zacks Consensus Estimate of 46 cents.
The company’s revenues for the reported quarter grew 15% year-over-year to $ 835.4 million. However, revenues fell short of the Zacks Consensus Estimate of $ 862 million. The year-over-year improvement primarily stemmed from higher sales volumes during the quarter.
(Read our full coverage of the fourth quarter and full year 2010 earnings report at Arch Misses; Outlook Remains Strong)
Agreement of Analysts
Looking at the estimate revision trends, most of the analysts seem to agree with a slightly hurt first quarter 2011 results outlook for Arch Coal. Over the past 7 days, none of the analysts (out of 19) have revised the first quarter estimates upwards, while 3 analysts have slashed estimates. In the last 30 days, only 1 analyst covering the stock has revised estimates upwards, whereas estimates of 3 analysts have shown a downtrend.
On the other hand, 2011 estimates revisions show a positive trend, again in sync with the company’s forecast of positive 2011 results. 2011 estimates have been revised upward over the last 7 days by 3 of the 22 analysts following the stock with only 2 revisions in the opposite direction. In the last 30 days, 6 analysts raised their estimates for 2011, while only 3 analysts lowered their estimates.
The analysts had trimmed their first quarter estimates in accordance with the disappointing guidance provided by the company.
Magnitude of Estimate Revisions
Estimates for the first quarter of 2011 have moved down, while the estimates for fiscal 2011 have moved up over the last 30 days due to a mixed revision trend followed by the analysts following the stock. The current Zacks Consensus Estimate for the first quarter and fiscal 2011 are 33 cents and $ 2.51, respectively.
Our Take & Recommendation
Arch Coal currently retains a Zacks #3 Rank (short-term Hold rating). We believe that the coal operators are looking forward to booking strong earnings in 2011 given the soaring coal prices. We will nevertheless continue to maintain a neutral stance on Arch Coal given the threats of substitution from alternate energy sources, specifically natural gas, among other factors.
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. One of the major competitors of the company is Peabody Energy Corp. (BTU).
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