October 28, 2011 / 12:11 PM / in 6 years

UPDATE 3-Arch Coal sees strong exports despite mine woes

* Q3 adj EPS $0.08 vs Wall St view $0.12

* Revenue jumps 37 pct to $1.2 bln

* Shares up 6 percent

By Steve James and Krishna Das

Oct 28 (Reuters) - Arch Coal Inc posted a lower-than-expected quarterly profit as flooding in the U.S. Midwest hit shipments and West Virginia mine costs rose, but it forecast record exports this year on strong demand from Asian steelmakers.

Shares of the St. Louis-based company rose 6 percent to $19.37 on Friday on the New York Stock Exchange. The stock had lost 48 percent of its value this year by Thursday’s close.

The coal producer maintained its earnings estimates for the full year, and unveiled higher-priced sales commitments for next year.

For 2012, Arch has a commitment to sell 93.3 million tons of coal from the Powder River Basin (PRB) in Wyoming at an average price of $14.49 per ton, higher than some of its recent contracts.

“On the positive side, Arch booked 2012 PRB thermal coal prices well above our estimate for average uncommitted PRB thermal coal,” Brean Murray, Carret & Co analyst Lucas Pipes said in a note.

The price of PRB coal is generally less than that of coal produced in other regions as it exists in greater abundance, is easier to mine and has a lower cost of production. PRB coal’s heat content is generally lower.

“We are seeing a real demand for PRB coal which is benefiting from the rebuilding efforts from PRB served generators that are seeing their stockpiles dip below normal and from interest in ultra low sulfur coal,” Chief Operating Officer John Eaves said on a conference call.

Rival Consol Energy earlier this week reported third-quarter profit that more than doubled on higher prices for its steel-making coal. Peabody Energy Corp , the largest U.S. coal producer, also reported a strong third quarter.

“It’s our view that ongoing supply constraints domestically and around the world -- along with significant growth in energy demand globally -- will exert upward pressure on coal prices over the long term,” Arch’s Chief Executive Steven Leer said, who added that he expected Arch to deliver record export coal shipments in 2011.

PROFIT FALLS

Arch’s third-quarter net profit fell to $19 million, or 9 cents per share, from $46.7 million, or 29 cents per share, a year earlier.

Excluding items, Arch earned 8 cents per share, below the 12 cents that analysts had forecast, according to Thomson Reuters I/B/E/S.

A 13-percent increase in average selling price per ton helped revenue jump 37 percent to $1.2 billion, largely in line with Wall Street predictions.

Leer said third-quarter financial results reflected lower shipments from the Powder River Basin due to the impact of Midwestern flooding on rail service.

Also, there was lower profitability at Arch’s Mountain Laurel operation in West Virginia, because of “geologic challenges,” he said.

A month ago, Arch cut its full-year 2011 adjusted earnings outlook to a range of $1 to $1.40 per share, from its prior estimate of $1.75 to $2.15, citing lost production at Mountain Laurel.

“After the company’s 3Q11 preannouncement on September 30, we believe that lower met coal sales in 2011 were largely expected by the Street. Nonetheless, our 2011 estimates will likely move closer to the bottom end of the company’s financial guidance,” analyst Pipes said.

In July, Arch reported lower second-quarter earnings, but said the second half of the year should be stronger. It also said it expected more expenses in the third quarter from its International Coal Group (ICG) acquisition.

On Friday, Arch estimated full-year capital spending, excluding acquisitions and new reserve additions, at $390 million to $410 million -- about $100 million lower than its prior forecast.

Arch now expects 2011 sales volumes of 157 million to 160 million tons, with 7.5 million to 8.0 million tons sold into steel-making metallurgical markets.

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