Coal producer Arch Coal Inc. (ACI) reported net adjusted earnings of 36 cents per share for the first quarter 2011, which beat the Zacks Consensus Estimate by 4 cents.
The quarterly result also handsomely surpassed the year-ago quarter earnings by 33 cents.
GAAP net earnings during the quarter were 34 cents per share versus a loss of 1 cent in the year-ago quarter. The difference between GAAP and operating earnings was a 3 cent impact relating to non-cash amortization of acquired coal supply agreements and 1 cent for tax adjustments.
Total Revenue
Arch Coal's total revenue of $872.9 million in the first quarter was $41.9 million higher than the Zacks Consensus Estimate of $831 million. Revenue was also above the year-ago figure of $711.9 million, reflecting growth of 22.6%, mainly on higher sales price per ton.
Operational Update
Arch Coal sold about 36.2 million tons of coal in the reported quarter, down 3.5% year over year. However, a $4.2 per ton increase in the sales price during the quarter boosted the overall top line of the company.
The increase in sales price was mainly driven by the higher shipment of Arch Coal’s metallurgical and steam coal sales. During the first quarter 2011, the company shipped 1.6 million tons into international markets, which reflects growth of 40% from the prior-year quarter.
Cost of sales during the first quarter increased by 18.7% year over year, but declined 249 basis points as a percentage of revenue.
Operating margin per ton during the first quarter 2011 was $3.75, up by $1.81 per ton from the year-earlier quarter.
Adjusted earnings before interest, taxes, depreciation, depletion and amortization (EBITDA) increased 45.6% to reach $191.4 million in the reported quarter.
Interest expenses during the quarter were $34.6 million, versus $33.1 million in the year-ago quarter.
Financial Update
Cash and cash equivalents for the company as of March 31, 2011 were $69.2 million versus $50.4 million as of March 31, 2010.
Capital expenditures for the quarter were $38.7 million versus $31.9 million in the first quarter of 2010. Arch Coal generated free cash flow of $47.4 million in the reported quarter, versus $61.3 million at the end of first quarter 2010.
Capital expenditure at Arch Coal is expected to remain in the range of $370−$410 million in 2011.
Guidance
Having wrapped up a solid first quarter, Arch Coal expects to sustain its strong performance in the remaining three quarters of the fiscal year. This is exemplified in the promising guidance issued by the company for the fiscal year.
The company expects total sales volumes in 2011 to be in the range of 155 million to 160 million tons, with metallurgical coal sales comprising 7.5 million tons.
Arch Coal also revised its adjusted EBITDA in 2011, which is now expected to be in the range of $930−$1,050 million, up from the previous expectation of $910−$1,030 million.
Depreciation, depletion and amortization expenses are expected in a band of $376 million to $386 million in 2011.
The company now expects its 2011 earnings to range between $2.10 and $2.60 per share, up from the previous expectation of $2.00 to $2.50 per share. The GAAP guidance, which includes amortization of coal supply agreements, is in the range of $2.03 to $2.52, up from the prior forecast of $1.93 to $2.42.
Peer Update
Arch Coal’s primary competitor, Peabody Energy Corporation (BTU), announced operating earnings for the first quarter 2011 of 67 cents per share, versus 52 cents in the year-ago quarter, reflecting growth of 29.0%. The results of the company also surpassed the Zacks Consensus Estimate of 60 cents per share.
Peabody's quarterly revenue at $1.744 billion increased 15% year over year on the back of robust Australian coal prices and U.S. volumes.
Our Take
Arch Coal has surpassed our revenue and earnings per share expectations during the quarter on the strength of improved sales of the high variety metallurgical coal. Given the scenario of robust coal demand in the international markets, we expect the company to achieve its revised targets for 2011.
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. Arch Coal currently retains a Zacks #3 Rank (short-term 'Hold' rating).
ARCH COAL INC (ACI): Free Stock Analysis Report
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