Weak Demand, Prices Burn Arch Coal

Third-quarter results fall well short of targets and the company slashes guidance.
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Arch Coal

(ACI) - Get Report

posted improved third-quarter earnings Friday but missed Wall Street's targets, as results were hurt by weaker sales, lower prices and higher costs.

The company, citing weakness in the U.S. coal market, also lowered its full-year production and earnings forecasts.

The coal producer posted income of $50.9 million, or 35 cents a share, up from $18.9 million, or 13 cents a share, a year earlier. Analysts polled by Thomson First Call anticipated earnings of 40 cents a share.

Revenue slid to $610 million from $654.7 million a year earlier. Analysts expected revenue of $671 million.

"By effectively managing our controllable costs, Arch has succeeded in expanding its operating margins and earnings on a year-over-year basis," said John Eaves, Arch's president and chief operating officer. "However, as expected, Arch's operations during the third quarter of 2006 were affected by three scheduled longwall moves, as well as continuing rail challenges and generally weaker pricing conditions in the marketplace."

Arch's total coal tons sold fell to 32 million from 35.1 million last year. The company's average coal sales price per ton declined to $16.78 from $17.97 a year earlier, while its total operating cost per ton fell to $13.11 from $16.57.

Arch said that coal markets as a whole have been hurt by milder weather that cut coal consumption, as well as higher natural gas storage levels that have cut natural gas prices.

For the full year, Arch now expects earnings of $1.60 to $1.70 a share, compared with its earlier view of $1.87 to $2.12. Analysts see earnings of $1.97 a share.

The company lowered its fourth-quarter production forecast by 3 million tons. Arch also cut its 2007 forecast by 10 million tons to 140 million tons.

Shares of Arch Coal were sliding $2.51, or 7.3%, to $31.75 in premarket trading.