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Arch Coal Needs a Spark

Stocks in this article: ACI BTU ANR CLD

Arch Coal's cost reduction also compared favorably to market leader Peabody Energy. Unfortunately, though, the 13% decline in average selling prices per ton negated any positive effects the company should have gained from the operational improvements. Given that this is a "bottom line business," the fact that Arch Coal still couldn't post break-even results was nonetheless disappointing.

Investors will read this and accuse me of focusing too narrowly on setbacks. But given the deficits with which management has had to work -- many self-inflicted -- I'm not yet ready to give Arch Coal the benefit of the doubt. Let's not forget that this is the same management that bet incorrectly on a transformational met coal, burdening itself with significant debt after the industry flamed out, leaving only ashes.

And it doesn't seem as if management has gotten over that poor decision. In fairness, Arch Coal isn't the only one that got burned. Peabody absorbed debt with its 2011 purchase of Macarthur. Alpha Natural Resources over-leveraged with its $7.1 billion deal in 2011 for Massey Energy. The difference, however, is that those deals have not impacted how Alpha Natural and Peabody project for the future.

I won't say Arch Coal management is scared. But I believe they've lost a bit of confidence following an embarrassing deal. Although there is clearly an uptick in coal demand, spurring positive outlooks from Cloud Peak, Alpha Natural, and Peabody, Arch Coal's management does not share in the enthusiasm, stating: "So while we are seeing some signs that coal markets are poised to improve, we aren't ready to predict that turnaround will occur."

I realize my interpretation here is highly subjective. What I do know is that in an industry that has had its lunch money stolen for years, confidence matters. And while it's possible that Arch Coal is just being cautious with its guidance, I don't believe it serves their interest at this point. Nor does it help investors eager to believe in management's ability to deliver.

At the time of publication, the author held no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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