Arch Coal Inc. (NYSE: ACI) reported fourth quarter and full year earnings this morning, and, like most other coal miners, the fourth quarter was just okay, while the outlook for the year ahead is not so bright. Alpha Natural Resources Inc. (NYSE: ANR), Patriot Coal Co. (NYSE: PCX), Peabody Energy Co. (NYSE: BTU), and Consol Energy Inc. (NYSE: CNX) all eked out a profit, but are cautious about demand in 2012.
Arch reported adjusted diluted EPS for the quarter of $0.29, compared with a consensus estimate of $0.32. Eliminating the adjustments, diluted EPS came in at $0.33. Quarterly revenue also fell a bit short at $1.23 billion compared with estimates of $1.3 billion.
The company’s CEO said that Arch is reducing its production volumes in 2012 “to better align with weak generation and coal demand trends.” Here’s what the company had to say about conditions in 2011 and its outlook for 2012:
Coal markets weakened in the fourth quarter of 2011 as abnormally mild weather and muted economic growth caused U.S. power generation to decline slightly for the full year. Domestic coal consumption declined 5 percent in 2011, resulting from the decrease in power generation as well as fuel switching by power producers given decade-low prices for natural gas and abnormally high hydroelectric availability. As a result, coal stockpiles at U.S. generators rose to an estimated 180 million tons by year end, a seasonal build that is above historical norms.
In 2012, Arch currently estimates that domestic coal consumption for power generation could decline by 50 million tons or more from 2011 levels, as mild weather has reduced power demand and the current oversupply in natural gas markets could induce more coal displacement. Given anticipated declines in domestic coal use as well as U.S. generator stockpile builds, Arch believes that coal production and capital spending levels industry-wide are in the process of significant rationalization, which should set the stage for the next market upswing.
Arch shares are down nearly -4.5% in pre-market trading at $15.58 in a 52-week range of $13.09-$36.99.
Paul Ausick
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