July 27, 2012 / 12:32 PM / 6 years ago

UPDATE 4-Arch Coal qtrly loss beats view, stock up on outlook

* Q2 adj loss 10 cts/shr vs Street view loss 18 cts/shr
    * Revenue rises 8 percent to $1.1 bln
    * Stock jumps 12 percent

 (Updates with comments from conference call)
    By Steve James
    July 27 (Reuters) - Arch Coal Inc posted a
second-quarter loss, hurt by charges to close mines in the face
of falling prices, but it still beat Wall Street estimates and
its shares rose 12 percent.
    The company, which has idled five mines in the Appalachian
region to cut production, forecast an improved U.S. market for
thermal coal, which is used for power generation. But it cut its
sales estimate for steelmaking metallurgical coal.
    Arch Coal is considering selling some non-core assets or
reserves, Chief Executive John Eaves said on a conference call
with analysts on Friday.
     "I don't want to set an expectation that a transaction is
certain to occur," Eaves added. "We know the inherent value of
our assets and reserves and we don't plan to give that value
    Arch shares were up 19 percent at $6.26 in late morning
trading on the New York Stock Exchange. The stock fell to its
lowest level in more than a decade on Thursday.
    The quarterly loss comes at a time when the U.S. coal
industry is going through a tough period, with weak demand from
utilities and steelmakers and prices slumping as some power
companies switch to cheaper natural gas.
    Most coal companies have been forced to cut back production,
especially in the high-cost Appalachian region and one, Patriot
Coal Corp, recently filed for Chapter 11 bankruptcy
    Although it produced and sold less coal in the second
quarter, Arch reduced its costs.
    This helped to increase overall operating margins, noted
Brean Murray Carret & Co analyst Lucas Pipes. "The beat was
driven by the company's costs solid cost performance in its
Appalachian and PRB (Powder River Basin) segment," Pipes wrote.
    CEO Eaves was bullish on the prospects for thermal coal.  
"Summer has arrived ... bringing heat, power load and increased
coal burn," he said in a statement.
    "With improving coal demand and ongoing supply
rationalization, we could end the year with domestic stockpiles
below 175 million tons, the level at which we entered 2012."
    Excluding restructuring charges to close mines and other
one-time items, the company posted a loss of 10 cents per share
in the quarter. Analysts had expected a loss of 18 cents per
share, according to Thomson Reuters I/B/E/S.
    Following a relatively mild winter, electricity demand
dropped and stockpiles of coal at power plants rose.
    In addition, some utilities switched from coal to cheaper
natural gas to fuel. As a result, thermal coal prices have
slumped some 20 percent this year.
    Arch lowered its estimate for metallurgical coal sales to
7.5 million tons this year from the 8.0 million to 8.5 million
tons it had expected.
    "Global coal prices are currently soft as supply growth has
outpaced demand through the first half of 2012," Eaves said in
the statement
     Arch said global steel production declined month-over-month
in June, particularly in Europe, while steel plant utilization
rates in the United States fell below 75 percent in July from 80
percent in April.
     But the company said China and India were on pace to
surpass record coal import levels in 2011.
    "As global economic growth accelerates, we expect coal
markets to rebalance and tighten significantly," said Eaves.
    St. Louis-based Arch trimmed its forecast for prices for
Powder River basin, Western Bituminous and Appalachian coal, but
slightly raised its forecast for Illinois Basin coal.
    The second-quarter loss was $435.5 million, or $2.05 per
share, compared with a profit of $6.3 million, or 4 cents per
share, in the year-earlier quarter.
    The company has idled coal-face operations at its Dugout
Canyon mine in Utah for the first half of 2012 and reduced the
workforce at several operations in eastern Kentucky with about
100 layoffs.
    Revenue increased 8 percent to $1.1 billion, beating the
average analyst estimate of $998 million, despite a 14 percent
decline in sales volume compared with the second quarter of
    The company produced 31.5 million tons of coal in the
quarter, down from 35.5 million in the first quarter and 36.7
million in the year-earlier quarter.

 (Reporting by Steve James and Matt Daily; Editing by Gerald E.
McCormick, Jeffrey Benkoe, Sofina Mirza-Reid and Ted Kerr)
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