Coal is Hot (ACI, CNX, BTU)

This morning’s quarterly and annual results from Arch Coal, Inc. (NYSE:ACI) have kept the coal fires burning. Arch reported EPS of $2.45 on net income of $354.3 million for the year. Annual revenues hit $2.98 billion. Analysts had been anticipating $2.42 EPS on $2.97 billion in revenues.

The quarterly results were also stirring. Revenues hit $729.9 million and EPS was $0.44. Analysts expected EPS of $0.39 and revenues of $713.9 million. However, compared with 2007, EPS was off by $0.12/share, and that was disappointing. The stock is down almost 5% in early trading.

The other thing putting pressure on the share price is the outlook for 2009. Arch, like Peabody Energy Corp. (NYSE:BTU,) expects a softer market for coal in 2009. Customer stockpiles are high, the economy is weak, and other fuels, especially natural gas, are cheap. Arch estimated that power generators finished 2008 with a 59-day supply of coal. That’s higher than Peabody’s estimated 56-day supply estimate.

In other news from the coal producers, Citigroup raised CONSOL Energy Inc. (NYSE:CNX) to ‘buy’ this morning, following yesterday’s earnings report. CONSOL, like Arch and Peabody Energy Corp. (NYSE:BTU), sold a lot of coal at higher prices in 2008. No surprises there.

The company published production targets of 65 million tons of coal and 85 billion cubic feet of natural gas in 2009. It did not specify a capital spending budget, saying that it would "adopt a cautious approach to capital expenditures and cash management."

CONSOL noted that it had committed and priced nearly 64 million tons of 2009 production. The average realized price for those tons is $61.56/ton. That’s almost $10/ton better than the fourth quarter average per ton of $51.88.

The three companies’ shares opened higher this morning, but only CONSOL has managed to maintain a very slight upside. The good news in coal was expected; the outlook for 2009 is weaker

Paul Ausick.