Energy Losers: Arch Coal's Earnings Lump - TheStreet

Energy Losers: Arch Coal's Earnings Lump

Arch Coal delivers a lump of coal to investors in its fourth quarter earnings.
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(Arch Coal story updated for closing price and volume of Arch Coal stock.)

ST. LOUIS, MO. (

TheStreet

) --

Arch Coal

(ACI) - Get Report

delivered a lump of coal to investors in terms of its fourth quarter earnings.

Investors responded by sending shares of the Powder River Basin coal producer down by more than 14% on Friday. There were more than 15 million shares of Arch Coal traded on Friday, versus an average daily volume of 4.4 million shares.

Arch Coal missed the Street by 16 cents in its fourth quarter earnings per share. Maybe even more distressing, Arch Coal's 2010 guidance is well below even the most conservative Street estimates.

The 14% drop was equal to $3.47, and Arch Coal closed at $21.07 on Friday. The black market day for Arch Coal left its shares at their lowest closing price since Dec. 17.

Net earnings in the fourth quarter for Arch coal fell to $1.5 million, or 1 cent per share, compared to net income of $62.3 million, or 44 cents per share, in the fourth quarter 2008.

Analysts had expected earnings of 17 cents a share in the fourth quarter.

Analysts continue to be bearish on Arch Coal after the weak earnings, and in particular, the disappointing guidance.

Brean Murray Carret put out a research note on Friday morning reiterating it sell on Arch Coal and noted that Arch Coal EBITDA of $144 million was below both Brean Murray's bearish estimate of $150 million and the Street consensus of $160 million.

Most importantly, Brean Murray said that Arch Coal's guidance of 2010 EBITDA between $590 million and $710 million is well below the Street estimate of $750 million. What's more, it low end would be even beneath Brean Murrays' bearish estimate of $637 million.

Arch Coal guided to earnings between 37 and 86 cents in 2010, whereas bearish Brean Murray is at 95 cents, and the Street $1.24.

Expect those Street estimates to be revised downward.

The Brean Murray analyst wrote that given strong earnings and 2010 outlook from Powder River Basin peers

Peabody Energy

(BTU) - Get Report

and

Consol

(CNX) - Get Report

, the Arch Coal earnings miss and guidance should compound investor negative sentiment on Friday.

However, coal producers were down across the board on Friday. Peabody was down close to 7% and Consol was down 5.5%. Trading was elevated as well, with both Peabody and Consol seeing daily volume more than double their average.

The final negative indicator in the outlook for Arch Coal is its coal hedge position relative to other Powder River Basin peers. Earlier this year, there had been speculation that Arch Coal's low hedge could prove to be a boon if the coal market recovered more quickly.

It was not a good bet. "During the fourth quarter, Arch priced very little tonnage (just 5 million tons for both 2010 and 2011) due to the weak market, and is still the most unhedged Powder River Basin producer, with up to 20 million and 95 million tons left to price for 2010 and 2011, respectively. We don't believe this is a very desirable position to be in, given the current weakness in the PRB market," the Brean Murray research note said.

-- Reported by Eric Rosenbaum in New York.

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