It has been about a month since the last earnings report for Arch Resources (ARCH). Shares have lost about 19.9% 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 Resources due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Arch Resources Q3 Loss Wider Than Expected, Sales Top
Arch Resources Inc. reported third-quarter 2020 operating loss of $1.87 per share, wider than the Zacks Consensus Estimate of a loss of $1.58. In the year-ago quarter, the company reported earnings of $4.03 per share.
Total revenues amounted to $382.3 million, which beat the Zacks Consensus Estimate of $357 million by 7.1%.
In the Metallurgical segment, the company sold 1.7 million tons of coal, down 10.5% from the prior-year figure of 1.9 million tons. It recorded cash margins of $6.26 per ton compared with $34 in the year-ago quarter, primarily due to lower sales price.
During the quarter, the Powder River Basin segment’s cash margin per ton was $2.38 versus $2.25 in the prior-year period. The company sold 14.3 million tons, down from the year-ago figure of 22.2 million tons. This segment benefited from a more favorable balance between production and shipping rates, along with solid cost control.
In the Other Thermal segment, its cash margin was ($2.96) per ton versus $8.36 in the prior-year period. This segment experienced negative margins, principally due to ongoing weakness in domestic thermal markets.
Highlights of the Release
During the third quarter, Arch Resources invested $45.8 million in the Leer South mine development, and expects to pump capital between $360 million and $390 million into the project for its completion. As of Sep 30, 2020, the company invested $256 million in the project. It is on track to commence longwall operations at the mine in third-quarter 2021. When fully operational, the mine is expected to produce up to 4 million tons of High-Vol A coking coal annually for sale in global metallurgical markets.
During the quarter, the company decided to terminate the thermal coal joint venture with Peabody Energy after the U.S. District Court's ruling to block the transaction. After extensive consideration and discussion, Arch and Peabody have agreed to discontinue legal efforts, given the significant investment of time, resources and expense that would be required to conduct an appeal. This is definitely a setback for the company as it is trying hard to cope with lower demand and drop in per ton prices of coal.
During the quarter, Arch Resources secured commitments totaling 1.7 million tons for delivery to North American customers in 2021, at an average fixed price of more than $90 per ton. Of the total, 1.3 million tons were High-Vol A quality that garnered more than $93 per ton.
Cash and cash equivalents as of Sep 30, 2020 were $156.7 million compared with $153.1 million at 2019-end.
Long-term debt as of Sep 30, 2020 was $368.3 million compared with $290.1 million at 2019-end.
Cash provided by operating activities in the first nine months of 2020 was $55.9 million compared with $334.1 million in the year-ago period.
Arch Resources had 6.1 million tons and 3.7 million tons of coking coal volume committed for 2020 and 2021, respectively. Power River Basin segment had 54 million tons and 45.8 million tons of volumes committed for 2020 and 2021, respectively.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -244.68% due to these changes.
At this time, Arch Resources has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Arch Resources has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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