A month has gone by since the last earnings report for Arch Coal (ARCH). Shares have added about 22.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Arch Coal due for a pullback? 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 catalysts.
Arch Coal Q1 Loss Wider Than Expected, Sales Beat
Arch Coal Inc. reported first-quarter 2020 operating loss of $1.67 per share, wider than the Zacks Consensus Estimate of a loss of $1.21.
Total revenues in the reported quarter amounted to $405.2 million, which beat the Zacks Consensus Estimate of $387 million by 4.7%. However, the figure declined 27% on a year-over-year basis due to lower sales volumes, and reduction in cash sales price per ton in Metallurgical and Other Thermal segments.
In the Metallurgical segment, the company sold 1.8 million tons of coal, in line with the prior-year figure. It recorded cash margins of $23.93 per ton compared with $50.95 in the year-ago quarter, owing to lower sales price.
During the quarter, the Powder River Basin segment’s cash margin per ton was (13 cents) versus $1.20 in the prior-year period. The company sold 14.2 million tons, down from the year-ago figure of 17.1 million tons.
In the Other Thermal segment, its cash margin was ($2.29) per ton versus $3.30 in the prior-year period. Shipments also declined 58.7% year over year to 0.7 million tons.
Highlights of the Release
During the first quarter, Arch Coal invested $62.1 million in the Leer South mine development and expects to invest $220 million in the same 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 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 first quarter, the company further strengthened its liquidity position with the completion of a four-year, $54-million equipment financing facility. The company ended the first quarter with $323 million of liquidity.
Cash and cash equivalents as of Mar 31, 2020 were $105.2 million compared with $153.1 million at the end of 2019.
Long-term debt as of Mar 31, 2020 was $330.1 million compared with $290.1 million at the end of 2019.
Cash provided by (used in) operating activities in first-quarter 2020 was ($12.1) million versus $84.9 million in the year-ago period.
Arch Coal expects coking coal volume and total sales volume for 2020 to be 5.9 and 69 million tons, respectively. The company has downwardly revised its capital expenditure guidance for 2020 by $20 million to the range of $280-$300 million, primarily due to lower spending on thermal operations.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -35.21% due to these changes.
At this time, Arch Coal has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
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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