Arch Coal (NYSE:ACI) reported solid earnings for the third quarter today, but its share price has fallen more than 4% since the market opened this morning. Arch reported EPS of $0.68, compared with $0.19 in the year-ago quarter. Revenue totaled $769.46 million, up from $599.15 million a year ago. Analysts expected EPS of $0.59 and revenues of $764.09 million, so Arch exceeded in both categories.

What’s taking the share price down is the company’s downward revisionof its guidance for the rest of 2008. The EPS forecast has been loweredfrom $2.50-$2.85 to $2.30-$2.55, primarily due to weaker demandresulting from the global economic slowdown. The company’s Appalachiancoal price jumped by 70%, from $46.41/ton to $78.95/ton. All told, Archsold 34.8 million tons of coal in the third quarter, up slightly from34.4 million tons in the same period a year ago, at an averageprice/ton of $20.38, up from $16.02 a year ago. Arch also doubled itsoperating margin per ton. Had it now lowered its guidance, this wouldhave been a stellar report in today’s environment.

For comparison, Foundation Coal (NYSE:FCL) reported a net loss lastweek, bringing the stock down about 80% from its 52-week high.Foundation had trouble shipping its northern and central Appalachiancoal, even though the average price per ton was up 20%. Like Arch,Foundation lowered guidance for the fourth quarter; unlike Arch,Foundation also reduced 2009 guidance.

In contrast, Peabody Energy (NYSE:BTU) raised its guidance for 2008,but cautioned that coal exports would be critical to reaching its newannual EPS target of $3.00-$3.25. Peabody also announced last Fridaythat it was doubling its stock buyback program to a new total of $1billion.

But these days, balance sheets tell the story. Peabody is sitting on$104 million in cash. Foundation holds about $24 million in cash, andArch $41 million. Property, plant, and equipment grew only slightly atArch and Peabody, while they fell at Foundation. Long-term debt at allthree companies is relatively modest, and declining a bit.

The weak global economy brings energy companies face-to-face withsoftening demand, lower prices, and increased costs. If this soundsfamiliar, it’s because coal miners are in the same boat with oil andnatural gas companies. The assets may be huge, but they’re only worthwhat someone will pay for them. And right now, investors are onlyinterested in one asset–their own cash.

Paul Ausick
October 27, 2008

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