EARNINGS PREVIEW:US Coal Companies Cut Output In 1Q, Look Abroad
April 13 2012 - 12:14PM
Dow Jones News
TAKING THE PULSE: With natural gas prices hovering near 10-year
lows, investors have fled coal companies, pushing the Dow Jones
U.S. Coal Index down by more than half in the past year.
To Moody's Investors Service, the gas glut heralds a sea change.
"Coal will find it increasingly difficult to compete with gas as a
power source over the next decade," Moody's analyst Jim Hempstead
said this month, as the rating firm projected a wide shift to
exports. Demand from Asia is still high.
Others think the outlook isn't quite so dire. Analysts at FBR
Capital Markets believe that most power plants capable of switching
to natural gas have already done so. Some coal producers are
cutting their output, which could raise prices down the line.
This month marks the two-year anniversary of an accident that
killed 29 miners at the Massey Energy Co.'s Upper Big Branch mine
in West Virginia--the worst U.S. mining disaster in four
decades.
COMPANIES TO WATCH:
Peabody Energy Corp. (BTU) - reports April 19
Wall Street Expectations: Analysts surveyed by Thomson Reuters
expect the company to earn 54 cents a share on revenue of $2.09
billion. It posted a profit of 65 cents a share, or 67 cents
excluding tax-related costs, a year earlier on revenue of $1.74
billion.
Key Issues: The largest U.S. coal producer by output, Peabody
has aggressively expanded its footprint in Asia in an effort to
capitalize on strong demand in China and India. To that end, the
company acquired Australian coal-mining company Macarthur Coal Ltd.
last year in a $5.05 billion deal expected to boost the company's
production of metallurgical coal, which is used by steelmakers. But
Peabody's chief executive warned early this year that Macarthur
mines weren't yet up to snuff, and would require costly repairs and
upgrades. After floods in Queensland halted port and rail movement
and restricted underground access, Peabody warned that its
quarterly earnings would fall on the low end of its earlier
downbeat projections.
Arch Coal Inc. (ACI) - report tentatively scheduled for April 24
Wall Street Expectations: The company is expected to post income
of 20 cents a share on revenue of $1.13 billion. A year earlier, it
posted a profit of 34 cents a share, or 36 cents excluding
acquisition-related costs and other one-time items, on revenue of
$873 million.
Key Issues: Like other coal companies, Arch has said it would
cut production this year. With an eye on ratcheting up exports, the
company has arranged for additional port capacity in the U.S. and
Canada, and opened offices in Singapore and London. Its $3.5
billion acquisition in June of International Coal Group made it the
second-largest U.S. producer of metallurgical coal.
Consol Energy Inc. (CNX) - reports April 26
Wall Street Expectations: The coal and natural gas company is
expected to earn 59 cents a share on revenue of $1.38 billion. A
year earlier, the company reported earnings of 84 cents a share on
$1.47 billion in revenue.
Key Issues: Consol Energy has seen soaring profits over recent
quarters, mostly on coal exports, at the same time as it has
bolstered its natural gas partnerships. In the new year, Consol
Energy said it is trimming its investments in its Marcellus Shale
assets, as natural gas prices continued to drop. The company last
month idled its Buchanan longwall mine operations in southwest
Virginia for an indefinite period, a move that UBS interpreted as
"a shot across the bow" to Asian buyers who are pressing the
company to accept lower prices on U.S. metallurgical coal.
Alpha Natural Resources Inc. (ANR) - report tentatively scheduled for May 3
Wall Street Expectations: Analysts are expecting the company to
post a loss of 4 cents a share, as it brings in revenue of $1.92
billion. Alpha posted a year-earlier profit of 41 cents a share, or
65 cents excluding acquisition costs and health-care charges, on
revenue of $1.13 billion.
Key Issues: Alpha's acquisition last year of Massey Energy Co.
has so far proved to be a boon and a curse. Revenue doubled last
quarter on Massey's legacy of metallurgical coal. But Alpha swung
to a surprise loss in the period on write-downs, as it also
inherited the higher costs of mining this coal, as well as
litigation expenses related to the 2010 disaster at Upper Big
Branch. Alpha in February said it would idle mines in Kentucky and
West Virginia and reduce the year's shipments by 4 million tons,
citing a combination of pressures from gas prices, federal
regulations and weak demand. Moody's Investors Service responded by
lowering its outlook on the company, pointing to the slowing growth
rate of steel production in China, among other things.
(The Thomson Reuters financial estimates and year-earlier
figures may not be comparable due to one-time items and other
adjustments.)
-By Kristin Jones, Dow Jones Newswires; 212-416-2208;
kristin.jones@dowjones.com