Arch Coal Inc's ACI.N quarterly profit missed Wall Street expectations and the miner said it was cutting production because of weak demand for thermal coal from U.S. power companies.
The disappointing earnings, combined with its gloomy outlook and production and job cuts, sent Arch shares down 4.8 percent to $14.83 in afternoon trading on the New York Stock Exchange on Friday.
Later, Chief Executive Officer Steven Leer warned that the company might make even more cuts if demand weakens during the year and said he expected to see other mining companies cut production in the Appalachian region.
"We'll further evaluate market conditions as the year progresses to make appropriate adjustments as necessary, including potentially pursuing further supply rationalization," Leer told Wall Street analysts on a conference call.
He said the U.S. coal industry faced some headwinds in domestic thermal markets in 2012 and power demand was already down about 8 percent so far this year because of exceptionally mild winter weather, which cuts demand for electric heat.
Leer also said coal faced a challenge from natural gas prices being at 10-year lows, at which level, some utilities are switching away from coal to fuel power plants.
"We expect to see more supply cuts in Appalachia and elsewhere in the near term," he said.
But he noted some positive signs, in particular, U.S. coal exports of both thermal coal and metallurgical coal, which is used for steelmaking. Last year saw a record 108 million tons of exports and in 2012, he said Arch expected the total to grow by another 5 million to 10 million tons.
In the company's earnings release, Leer said Arch was approaching 2012 "with a cautious view, due to domestic thermal market concerns.
"We are taking actions to maintain our operational flexibility and match our production and capital spending levels to market requirements, while expanding our presence in the seaborne (export) market," he said.
Arch said it would idle coal-face operations at its Dugout Canyon mine in Utah in the first half of 2012; it has already reduced the workforce at several operations in eastern Kentucky, with around 105 layoffs. These steps and others will mean a cut in volume of 5 million tons of thermal coal this year.
In 2011, the company produced and sold 155.3 million tons of coal.
"I wish they had been a little more pro-active in selling thermal coal, given the weak environment," said analyst Lucas Pipes of Brean Murray Carret & Co.
"The miss was mostly due to lower Central Appalachian shipments, which is indicative of the weak thermal market. The production cuts seem like the right thing to do."
Arch's fourth-quarter net income rose to $70.9 million, or 33 cents per share, from $47.8 million, or 29 cents per share, a year ago.
Excluding special items, earnings were 29 cents per share.
Analysts on average were expecting 32 cents, according to Thomson Reuters I/B/E/S.
Revenue rose 47 percent to $1.2 billion, the St. Louis-based company said. Analysts were expecting $1.3 billion.
(Additional reporting by Swetha Gopinath in Bangalore; Editing by Gopakumar Warrier, John Wallace and Gunna Dickson)