ST. LOUIS (AP) — Arch Coal Inc. swung to a second-quarter loss on mine closures and weak demand, but it did much better than Wall Street had expected and shares finished the day up 29 percent.
A soured global economy has cut into demand for coal, but so has cheap natural gas, an alternative fuel. Utilities are switching to natural gas from coal to generate electricity. Natural gas prices are the lowest in years because of huge supplies from booming production, and the mild winter across much of the nation didn’t put much of a dent in supply.
Prices for thermal coal used by power plants recently reached the lowest levels in two years as inventories have grown, Bank of America Merrill Lynch analysts said earlier this month. They suggested that mining companies should continue to cut back production and delay or cancel expansion plans.
“It has been a busy and challenging three months for Arch Coal,” John Eaves, Arch’s president and CEO, told analysts during a conference call. “The year-to-date decline in coal demand has been unprecedented, yet we’ve been successful in executing on a plan to improve our operational efficiencies, optimize our asset portfolio and enhance our financial flexibility.”
Eaves said Arch expects a better balance in the remainder of the year when it comes to U.S. demand for coal used in making electricity, citing increasing domestic power demand, reduced coal-to-gas switching concerns and growing U.S. coal exports.
The St. Louis company, one of the world’s biggest coal producers, posted losses of $435.5 million, or $2.05 per share, during the April-June quarter, compared with a profit of $6.3 million, or 4 cents per share, a year earlier.
After excluding one-time costs including mine shutdowns, Arch Coal Inc. reported an adjusted loss of $22 million, or a dime per share. That’s much better than the loss of 18 cents expected on Wall Street, according to FactSet.
Revenue rose 8 percent to $1.06 billion, up from $985.5 million a year earlier despite a 14-percent drop-off in sales volume compared to 2011’s second quarter.
Shares jumped $1.54 to close at $6.80.
Arch lowered to roughly 7.5 million tons its expected 2012 sales of its coal used to make steel, but left its full-year forecast of sales of coal used in producing electricity unchanged, at 128 million to 134 million tons.
Arch last month announced plans last month to lay off about 750 workers in the Kentucky, Virginia and West Virginia coalfields, blaming the move on market pressures and a challenging regulatory environment that it said has pushed U.S. coal consumption to a 20-year low. Eaves on Friday called that “a difficult but necessary decision that was made to enhance our competitive cost structure in Appalachia and to position Arch for long-term success.”
Eaves also said that the company may sell off some assets. He declined to offer specifics.
“We continue to evaluate non-core assets and reserves for possible divestiture, although I don’t want to set an expectation that a transaction is certain to occur,” he told analysts. “We know the inherent value of our assets and reserves, and we don’t plan to give that value away.”
Arch isn’t alone in grappling with the choppy coal market.
Peabody Energy — the world’s biggest private-sector coal company — on Tuesday said its second-quarter earnings fell on soft demand. It trimmed its 2012 production outlook and predicted lower-than-expected earnings for the third quarter.
Almost all coal producers are cutting production and shutting mines. Patriot Coal Corp. filed for Chapter 11 bankruptcy protection this month.
