Arch Coal’s 4Q earnings skid, 2010 forecast disappoints, shares fall

Arch Coal’s 4Q earnings plunge, shares fall

ST. LOUIS — Arch Coal Inc. cited nagging softness in coal demand from power plants and steelmakers for lower than expected earnings in the fourth quarter, but the miner said the industry was poised for a rebound this year.

“We believe that 2010 will be a transformative year for the coal industry,” said Steven Leer, Arch’s chairman and chief executive. “As excess coal stockpiles are worked off at U.S. and European power plants, global coal markets are poised for a meaningful recovery.”

Nonetheless, its forecast for 2010 earnings was short of analysts’ expectations, and Arch’s shares dropped $2.88, or 11.7 percent, to $21.66 in midday trading.

Arch, which fuels about 8 percent of all U.S. electrical generation, said it earned $1.5 million, or a penny per share, during the October-December period, down sharply from $62.3 million, or 44 cents per share, a year earlier.

Arch said its fourth-quarter results included charges tied to its $769 million purchase of the Jacobs Ranch coal mine in Wyoming last October, as well as December effect of inclement weather and electricity outages. Excluding such charges, Arch said it earned $18.2 million, or 11 cents per share, in the fourth quarter.

Analysts surveyed by Thomson Reuters expected 17 cents a share, on average. The estimates typically exclude one-time items.

Revenue slipped to $725.5 million from $729.9 million a year earlier. Analysts expected higher revenue of $728.4 million.

For 2010, Arch said it expects adjusted earnings per share of 50 cents to $1, excluding non-cash charges. Analysts had been looking for earnings of $1.24 a share for 2010.

Leer, in a conference call with analysts, said Arch weathered a 2009 that featured “anemic industrial activity,” unseasonable weather and weak prices for natural gas — which also fires power plants. Such factors last year prompted Arch and many other coal suppliers to slash their production as utility stockpiles mounted.

But Leer said that during the closing weeks of last year and early 2010, there’s “further evidence that the market is continuing to move off the bottom” as demand for metallurgical coal — used in steelmaking — increases and power companies whittle away at their stockpiles. Over this year’s first three weeks, he said, U.S. electrical generation is up 3.6 percent — “a good start to the year.”

Some analysts agree better days soon may be ahead for the battered coal industry. While calling Arch’s year-end showing “disappointing,” Jefferies & Co.’s Michael Dudas told clients in a research note that “we believe supply cuts, capital expenditure discipline and an eventual improvement in utility and steel utilization will improve coal industry fundamentals and support share recovery.”

The company also forecast its 2010 sales to be 145 million to 155 million tons, excluding coal bought from third parties.

For all of 2009, Arch said it earned $42.2 million, or 28 cents per share, down from $354.3 million, or $2.45 per share, a year ago. Annual revenue fell to $2.58 billion from $2.98 billion.

“Arch persevered through the worst power-generation market in the last 60 years to maintain profitability in 2009,” along the way “working aggressively to position the company for the next market rebound,” Leer said.