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TheStreet Open House

Why James River Coal Company (JRCC) Is Tanking on Tuesday

NEW YORK (TheStreet) -- James River Coal Company (JRCC) is tumbling on Tuesday after notifying the SEC it would not be able to submit its 10-K annual report as scheduled and that it is unable to make interest payments on a portion of its convertible debt.

By late afternoon, shares had taken off 13.3% to 61 cents.

In its SEC notification, the company said its annual report would be delayed due to a strategic review process announced earlier in the month and as adjustments are made to its mining operations, which include the closure and idling of mines.

"Given the company's current liquidity needs and the uncertainty surrounding the outcome of our strategic review process, our auditors have communicated to us that if they were to deliver an audit opinion based on the current circumstances, their audit opinion would contain a going concern qualification," the company said.

James River Coal said due to these concerns it is uncertain when its 10-K form will be filed.

The Richmond, Virginia-based business also said it will not make the scheduled interest payment on its 3.125% convertible senior notes due 2018, of which $13.3 million remains outstanding. James River Call said it is entitled to a 30-day grace period before an event of default can be said to have occurred.

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TheStreet Ratings team rates JAMES RIVER COAL CO as a Sell with a ratings score of D. The team has this to say about their recommendation:

"We rate JAMES RIVER COAL CO (JRCC) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk, disappointing return on equity, poor profit margins, weak operating cash flow and feeble growth in its earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Currently the debt-to-equity ratio of 1.72 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Along with the unfavorable debt-to-equity ratio, JRCC maintains a poor quick ratio of 0.96, which illustrates the inability to avoid short-term cash problems.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, JAMES RIVER COAL CO's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for JAMES RIVER COAL CO is currently extremely low, coming in at 3.70%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -16.98% is significantly below that of the industry average.
  • Net operating cash flow has significantly decreased to -$23.40 million or 183.35% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • JAMES RIVER COAL CO's earnings per share declined by 23.7% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, JAMES RIVER COAL CO reported poor results of -$3.99 versus -$1.19 in the prior year. For the next year, the market is expecting a contraction of 24.3% in earnings (-$4.96 versus -$3.99).

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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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