EARNINGS PREVIEW: US Coal Producers Adjust To Challenges
January 17 2012 - 3:31PM
Dow Jones News
TAKING THE PULSE: U.S. coal producers had seen their stocks
plummet recently as the companies have battled against rising
costs, increased environmental oversight and stiffer competition
from cleaner-burning and sometimes cheaper natural gas. Coal is
expected to cede more market share to natural gas, in what analysts
say could be a permanent shift.
Despite those challenges, many coal producers expect the U.S.
will play a larger role in the global coal market, as exports
reached near-record levels in 2011 and are poised to remain
historically high this year. To bolster their future earnings, many
companies are looking to ramp up exporting capacity, especially out
of the massive thermal coal reserves in the Powder River Basin in
Wyoming and Montana.
COMPANIES TO WATCH:
Peabody Energy Corp. (BTU) - reports Jan. 24
Wall Street Expectations: The company is expected to earn $1.32
a share on $2.34 billion in revenue. It posted a profit of 78 cents
a share, or 85 cents excluding tax-related costs, a year earlier on
revenue of $1.82 billion.
Key Issues: The largest U.S. coal producer by output completed
its roughly $5.05 billion acquisition of the Australia-based
coal-mining company Macarthur Coal Ltd. (MCC.AU), increasing its
exposure to the growing Asian market. It initially pursued the
purchase as a joint acquisition with ArcelorMittal (MT, MT.AE), the
world's largest steelmaker, but Arcelor pulled out of the deal
following the purchase, saying it no longer wanted to allocate
substantial capital for a non-controlling interest in
Macarthur.
Peabody has recently reported stronger profits thanks to rising
coal prices, and it hopes to capitalize on strong Asian demand with
greater exports from its Australian mines and the Powder River
Basin.
Alpha Natural Resources Inc. (ANR) - reports Feb. 24
Wall Street Expectations: Analysts surveyed by Thomson Reuters
forecast earnings of 29 cents a share on revenue of $2.17 billion.
A year earlier, it earned 9 cents a share, or 27 cents from
continuing operations, on $993.1 million in revenue.
Key Issues: Alpha saw its third-quarter earnings more than
double thanks to stronger metallurgical coal prices and higher
sales on its acquisition of Massey Energy Co., which it bought for
$7.1 billion last year. As part of the Massey tie-in, Alpha
inherited several civil suits related to a 2010 explosion at
Massey's Upper Big Branch mine in West Virginia that killed 29
miners. Alpha this month settled all remaining wrongful-death
lawsuits connected to the disaster, which was the worst U.S. mining
accident in four decades. In December, it agreed to pay about $200
million to resolve a range of civil and criminal penalties related
to the explosion.
Consol Energy Inc. (CNX) - reporting date to be announced
Wall Street Expectations: Analysts predict the coal and natural
gas company will report a profit of 62 cents a share and revenue of
$1.42 billion. The company reported year-earlier earnings of 46
cents a share, or 54 cents a share excluding one-time charges, on
$1.34 billion in revenue.
Key Issues: In recent quarters, Consol has posted soaring profit
growth on stronger coal sales. But illustrating its increased focus
on natural gas, Consol recently made several major deals to speed
up the development of its shale-rock assets. Hess Corp. (HES)
agreed to pay about $593 million for a 50% stake in Consol's Utica
Shale holdings in Ohio, allowing Consol to explore the acreage for
25 cents on the dollar. In August, Noble Energy Inc. (NBL) said it
would pay $3.4 billion for a 50% stake in Consol's Marcellus Shale
fields in Pennsylvania and West Virginia, helping Consol hasten
production at the sprawling site. The company raised its capital
budget by 21% for 2012, pushing a large slice of the funds toward
developing its Marcellus assets.
Arch Coal Inc. (ACI) - reporting date to be announced
Wall Street Expectations: The company is expected to post income
of 33 cents a share on $1.31 billion in revenue. For the same
quarter last year, Arch Coal posted a per-share profit of 29 cents,
or 33 cents excluding acquisition-related charges and other items,
on revenue of $835.4 million.
Key Issues: Arch slashed its full-year adjusted earnings
forecast twice last year, mostly on weaker-than-expected coal
production at a West Virginia mine complex. In June, Arch bought
International Coal Group Inc. for about $3.4 billion, expanding its
exposure to metallurgical coal production, a market that is growing
due to Asian demand. Higher sales prices have boosted revenue, but
profits have suffered amid production challenges.
(The Thomson Reuters financial estimates and year-earlier
figures may not be comparable due to one-time items and other
adjustments.)
-By Ben Fox Rubin, Dow Jones Newswires; 212-416-3108;
ben.rubin@dowjones.com
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