Arch Coal Inc. (ACI) reported fourth-quarter 2013 adjusted loss of 45 cents per share, wider than the Zacks Consensus Estimate of a loss of 36 cents. In the year-ago quarter, the company posted a loss of 42 cents per share. Quarterly result was negatively impacted primarily due to lower revenues and a rise in interest expenses.
On a GAAP basis, quarterly loss was $1.75 per share versus a loss of $1.39 per share in the prior-year quarter. The variance between GAAP and adjusted loss was due to the combined effect of costs for sales contract amortization and tax impact of adjustments, and several gains as a result of the early debt retirement and non-cash accretion of acquired coal supply agreements.
For 2013, Arch Coal’s adjusted loss per share was $1.08, narrower than the Zacks Consensus Estimate of a loss $1.35. Annual loss was significantly wider than the year-ago loss of 36 cents per share.
Annual GAAP loss was $3.03 per share compared with the prior-year loss of $3.24 per share.
Total Revenue
Arch Coal’s fourth-quarter total revenues of $0.7 billion missed the Zacks Consensus Estimate by 9.6%. Quarterly revenues decreased 17% year over year primarily due to lower sales volumes and a decline in average sales price per ton.
The company’s annual total revenues were $3.0 billion, lagging the Zacks Consensus Estimate by 5.2%. Reported revenues decreased 20% from the year-ago figure of $3.8 billion.
Operational Update
In the quarter under review, Arch Coal’s sales volume decreased 10.5% year over year to 32.3 million tons. Lower sales contribution from Powder River Basin ("PRB"), Appalachia and Bituminous Thermal operations led to the drop in total sales volume.
The company’s total operating cost per ton decreased 7.8% year over year due to the successful cost containment measures at the PRB and Appalachia basins.
In fourth-quarter 2013, total operating expenses decreased 9.7% year over year to $1,060.1 million, primarily due to lower cost of sales and depreciation expenses.
Arch Coal’s adjusted earnings before interest, tax, depreciation and amortization (“EBITDA”) were $38.4 million, reflecting a substantial year-over-year decline of 46.1%.
Financial Update
Cash and cash equivalents, as of Dec 31, 2013, were $911.1 million versus $784.6 million as of Dec 31, 2012.
Long-term debt, as of Dec 31, 2013, rose to $5,118 million from $5,085.9 million at year-end 2012.
For 2013, operating cash flow was $55.7 million compared with $332.8 million a year ago.
Capital expenditure was $297 million in 2013, lower than $395.2 million in the year-ago period.
Guidance
Arch Coal provided its 2014 thermal coal sales guidance in the range of 124 – 134 million tons. For metallurgical coal, the guidance was in the band of 7.5 – 8.5 million tons.
In addition, the company presented 2014 capital expenditure guidance in the range of $180 – $200 million.
Peer Comparison
Peabody Energy Corporation (BTU) reported break even result in fourth-quarter 2013. Results compared favorably with the Zacks Consensus Estimate of a loss of 5 cents.
Alliance Resource Partners, L.P.'s (ARLP) fourth-quarter 2013 earnings of $1.85 per unit beat the Zacks Consensus Estimate by 16.4%.
CONSOL Energy Inc. (CNX) reported pro forma earnings of 3 cents per share for the fourth quarter of 2013, widely missing the Zacks Consensus Estimate of 7 cents.
Our Take
Arch Coal again reported unfavorable results in the fourth quarter of 2013, primarily owing to disruptions of rail services and adverse geologic conditions.
However, we appreciate the company’s steady asset realignment strategy to concentrate more on core assets with potential for higher return. In addition, Arch Coal took several initiatives to enhance its coal reserves. In Dec 2013, Arch Coal started long wall mining techniques at Tygart Valley's Leer mine in northern West Virginia. In addition, the company’s purchase of the Gruffy properties will boost its production capacity.
On the divestiture front, Arch Coal divested its Canyon Fuel subsidiary for $422.7 million. This initiative will enable the company to reallocate its fund for profitable ventures.
As per a World Steel Association report, the long-term prospects for metallurgical coal remain bullish due to increased demand from the Asian, European and the Middle East and North African markets in the coming years. This is due to higher steel demand as a result of growth in the automotive, energy and residential construction sectors, and thus providing additional avenues for export growth.
Arch Coal Inc. currently has a Zacks Rank #3 (Hold).
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