Arch Coal Earnings Get a Boost from Impairment Charge

On a GAAP basis, the company’s net loss totaled $0.61 per share, which includes noncash charges for asset impairment and other items.

The company completed the sale in August of its Canyon Fuel subsidiary for $435 million and now says it has total liquidity of $1.6 billion, including short-term investments. The sale of Canyon Fuel is expected to result in administrative cost savings of $200 million through 2017.

Arch recorded an asset impairment charge of $200.4 million in the third quarter, primarily as a result of the weak market for thermal coal used in power generation.

The company reported sales of 38.3 million tons of coal in the quarter, slightly better than the 37.5 million tons it sold in the same period a year ago. The average sales price per ton fell from $25.57 in 2012 to $19.54, but cash costs also fell from $5.41 to $3.03.

Operating margin is the problem. In the year-ago quarter the company’s operating margin was $2.07 a ton, compared with just $0.07 a ton this year. The decline was attributed to a larger percentage of Powder River Basin coal in the company’s sales mix.

Arch now expects thermal coal sales volume for the year to total 134 million to 137 million tons, inline with its previous forecast. The company has lowered its metallurgical sales forecast for the year from 7.7 million to 8.3 million tons to between 6.9 million and 7.3 million tons.

The company’s CEO said:

Arch is successfully navigating challenging global coal markets by controlling costs and capital spending and effectively managing liquidity. … We are re-aligning our portfolio to focus on those core assets with the best long-term value and growth potential, particularly the Powder River Basin thermal franchise and the Appalachian metallurgical coal platform.

Even though Arch managed to beat adjusted EPS expectations by $0.30, the beat is entirely due to the exclusion of the asset impairment charge. The company’s operations contributed little.

The company’s shares were down about 0.5% in premarket trading, at $4.14 in a 52-week range of $3.47 to $8.79. Thomson Reuters had a consensus analyst price target of around $5.10 before this report.