Why Less Bad in Arch Coal Earnings Just Is Not Good Enough
Arch Coal Inc. (ACI) was a Hail Mary call in our stock picks that could double in 2014, mostly as the least ugly piglet of the small cap coal stocks. We had decided to remove Arch from that list of potential doubles prior to the Tuesday earnings report. Even with shares having reacted positively, we still think that the time for this to be a likely double has come and gone.
Normally you would expect to hear good news and a favorable outlook when you see a stock rise more than 5% after earnings. The problem is that Arch Coal is losing money, just losing less than analysts were expecting. Revenue was a tad light on expectations, and Arch again lowered expectations for sales volume and capital spending for 2014.
The net loss was $96.9 million. This translated to -$0.46 in earnings (loss) per share. If you adjust for one-time and special items, then suddenly the loss of $0.29 per share looks far better than the -$0.48 per share expected by analysts. Revenue was down almost 7% to $713.8 million, versus the $716 million expected.
The company's message is that it expects strong cost performance to continue and that it will remain nimble versus market conditions. The reality is that coal's negative trends are deeply entrenched, and there just seems to be no help whatsoever from any outside forces. The current energy targets from the White House, DOE and EPS just are not favorable to coal. That is more likely rather than less likely to continue.