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Arch Coal (ARCH) Down 22.8% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for Arch Coal (ARCH). Shares have lost about 22.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Arch Coal due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Arch Coal Posts Narrower-Than-Expected Loss in Q4

Arch Coal Inc.  reported fourth-quarter 2019 operating loss of 10 cents per share, which was narrower than the Zacks Consensus Estimate of a loss of 20 cents by 50%.
 
GAAP loss in the reported quarter was 57 cents against earnings of $4.44 per share in the year-ago period.

Total Revenues

Total revenues in the reported quarter amounted to $549.5 million, which beat the Zacks Consensus Estimate of $487 million by 12.7%. However, the figure declined 15.6% on a year-over-year basis due to lower sales volumes, and reduction in cash margin per ton in the Metallurgical and Other Thermal segment.

Segment Details

In the Metallurgical segment, the company sold 2 million tons of coal compared with the prior-year figure of 2.1 million tons. It recorded cash margins of $20.49 per ton compared with $46.69 in the year-ago quarter, owing to lower sales price.

During the quarter, the Powder River Basin segment’s cash margin per ton improved 12.3% from the prior-year period to $1.37. The company sold 18.1 million tons, down from the year-ago figure of 19.5 million tons.

In the Other Thermal segment, its cash margin was $3.60 per ton, down 41.3% from $6.13 in the year-ago quarter. Shipments also declined 8.7% year over year to 2.1 million tons.

Highlights of the Release

During 2019, Arch Coal invested $103 million in the Leer South mine development and expects to invest another $220 million in 2020. Total capex for Leer South is projected between $360 million and $390 million. The company is on track to commence longwall operations at the new mine in third-quarter 2021. This mine will produce very high quality coking coal, which will allow it to cater to rising demand globally.

During the quarter, Arch Coal bought back $10.5 million shares and made dividend payments totaling $8.0 million. In the last 11 quarters, the company has bought back a total of 10.1 million shares or 40% of its initial shares outstanding and returned a total of $913.3 million, including dividends, to its shareholders.

Financial Highlights

Cash and cash equivalents as of Dec 31, 2019 were $153.1 million compared with $264.9 million at the end of 2018.

Long-term debt as of Dec 31, 2019 was $290.1 million compared with $300.2 million at the end of 2018.

Cash provided from operating activities in 2019 was $419.7 million compared with $417.9 million a year ago.

Guidance

Arch Coal expects coking coal volume for 2020 in the range of 6.8-7.2 million tons and total sales volume within 82.8-87.2 million tons.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -87.01% due to these changes.

VGM Scores

At this time, Arch Coal has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Arch Coal has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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