Arch Coal (ACI) Misses Q2 EPS by 20c, Offers Outlook

Arch Coal (NYSE: ACI) reported Q2 EPS of ($0.73), $0.20 worse than the analyst estimate of ($0.53). Revenue for the quarter came in at $644.5 million versus the consensus estimate of $676.71 million.

Edward Rosenfeld, Chairman and Chief Executive Officer, commented, “We are pleased to have delivered sales and earnings results ahead of expectations in the second quarter. These results are attributable to outstanding performance in our retail segment, driven by robust comparable store sales growth of 18.5%, as well as a second consecutive quarter of mid-teens sales growth in our wholesale accessories business. As expected, sales in our wholesale footwear business excluding acquisitions were down, but we continue to see much-improved sell-through at our retail partners compared to 2014. Based on the improvement in the underlying trends in our business, we are confident in our ability to achieve our sales and earnings targets for 2015.”

Market Trends

Economic recovery and a return to normal temperatures are boosting power demand. However, coal's share of generation has eroded in the face of low natural gas prices and the impact of the MATS regulations. According to the EIA, gas's share of generation in April eclipsed that of coal for the first time on record, and gas prices remain mired below $3 per million Btus. As a result, Arch continues to expect a decrease in domestic utility coal consumption of 80 million tons this year.

However, while domestic coal demand is down, U.S. producers are starting to respond. Based on preliminary MSHA data, stockpile data, and various mine idling announcements, Arch now expects coal production to fall by over 90 million tons in 2015 compared to 2014. While the company expects coal stockpiles to remain elevated for some time, strong supply rationalization could lead to a better domestic thermal market in the future.

Internationally, the seaborne market remains challenging. The Australian dollar has weakened appreciably against the U.S. dollar, and Australia's coking coal benchmark recently settled at $93 per metric ton, the lowest since 2004. Thermal prices remain under considerable pressure as well.

"In the face of these challenges, Arch continues to adapt to market conditions and to focus on those market segments where it can capture the most value," Lang said.

Company Outlook

Given challenging market conditions, Arch has lowered the high end of its thermal guidance and now expects thermal sales volumes for 2015 to be in the range of 120 million to 124 million tons. In addition, Arch has again lowered its SG&A and capex guidance.

"We continue to take proactive steps to prudently manage through these tough times, with the goal of emerging a stronger company as markets recover," Eaves said. "Our cash-positive operating profile, relentless focus on cost control and capex management should enable us to continue to weather the ongoing challenges."

For earnings history and earnings-related data on Arch Coal (ACI) click here.

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