UPDATE: Arch Coal 4Q Profit Plunges 98%, 2010 Guidance Weak

Friday, January 29, 2010

By David Benoit
   Of DOW JONES NEWSWIRES
 

NEW YORK (Dow Jones)--Arch Coal Inc.'s (ACI) fourth-quarter profit fell 98% amid acquisition charges and falling prices that crushed margins. In addition, while the company predicted improvements in 2010, it still forecast earnings that didn't meet Wall Street's expectations.

The nation's second-largest coal producer missed expectations for earnings and revenue in the fourth-quarter despite higher than expected volumes from all of its regions, and a boost from acquisitions. And while predicting 2010 to be a "transformative year for the coal industry" as metallurgical coal improves and stockpiles fall, Arch still left its own forecast short of Wall Street's.

Shares dropped 7.2% to $22.77 in recent trading, after hitting a 52-week high of $28.34 earlier this month when coal was looking to gain steam as a hot commodity amid both hopes for increased energy use and steel use. Before falling over the past two days, the stock had risen 13% this year.

In fact, Arch's results looked all the more disappointing to some after Peabody Energy Corp. (BTU) topped expectations earlier this week and sounded bullish, though its forecast numbers were also slight.

Arch projected 2010 earnings of 50 cents to $1 a share, while analysts polled by Thomson Reuters recently forecast $1.24.

Brean Murray Carret analyst Jeremy Sussman said the market had been growing more bullish on thermal coal, the type used by utilities to make heat, and Arch's large exposure to the area had looked positive so far this year. But Arch hasn't yet proved that a general market increase it touted is going to translate to prices and revenue increases, particularly in the Powder River Basin area Arch operates in.

"The Powder River Basin market hasn't returned as much as many investors would have hoped," Sussman said. "It's more tied to domestic demand and Midwestern activity, which is not something we are as bullish on as international demand."

For the quarter, Arch reported a profit of $1.5 million, or 1 cent a share, down from $62.3 million, or 44 cents a share, a year earlier. The latest quarter included 10 cents a share in charges related to its $769 million acquisition of the Jacobs Ranch coal mine in October. But even adding those charges back in, the results still missed the 17 cents analysts polled by Thomson Reuters had forecast.

Revenue declined by $4.4 million to $725.5 million, also missing Wall Street's $728 million forecast.

Still, analysts said all three of the company's regions produced more coal than was expected, and it was the fall in prices, caused by a glut in coal supply, that pushed gross margin down to 21.9% from 26.9%

Tons sold climbed 11% but average sale prices declined 8.9% from the prior year and 11% sequentially.

The company expects 2010 production of 145 million to 155 million tons, compared with 125 million tons last year. Howard Weil analysts said they had been looking for 144 million, but added they also are looking for more clarity on prices.

"Positive macro commentary within the release is not likely to move performance today," the Howard Weil analysts said in a note.

-By David Benoit, Dow Jones Newswires, 212-416-2458; david.benoit@dowjones.com;