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An Investor’s Guide to Arch Coal

PART:
1 2 3 4 5 6 7 8 9 10 11 12
Part 8
An Investor’s Guide to Arch Coal PART 8 OF 12

Understanding Arch Coal’s Operating Performance

Arch Coal’s adjusted earnings

From October 2 to December 31, 2016, Arch Coal (ARCH) reported adjusted EBITDAR (earnings before interest, tax, depreciation, amortization, and restructuring costs) of $94.5 million, and $87.3 million prior to the bankruptcy exit. The company posted adjusted EBITDAR of $215.8 million in 1H17.

During the third quarter, adjusted EBITDAR for the PRB segment benefited from cost-control efforts and rebounding demand driven by rising natural gas prices. Cost-control efforts included adjusting operations to align with current market volume expectations.

Understanding Arch Coal&#8217;s Operating Performance

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During the same period, Metallurgical segment adjusted EBITDAR benefited from the significant increase in international pricing for metallurgical coal. Meanwhile, rising natural gas prices and higher international thermal prices came as a benefit for the Other Thermal segment.

For the period prior to ARCH’s exit from bankruptcy­—January1 to October 1, 2016—the PRB and Other Thermal segment’s adjusted EBITDARs were negatively impacted by demand destruction, driven by historically low natural gas prices. The Metallurgical segment’s EBITDAR was negatively impacted by a fall in metallurgical coal prices.

Net adjusted income

Arch Coal reported net adjusted income of $88.8 million in 1H17 and ~$33.5 million for the period October 2 to December 31, 2016, after it emerged from bankruptcy. From January 1 through October 1, 2016, the company reported $1.24 billion net income, of which $1.6 billion was from item reorganization. In 2015, the company had reported a net loss of $2.9 billion.

The fluctuations in the commodity market may have a significant influence on the margins of Arch Coal (ARCH) and other major coal (KOL) mining companies such as Alliance Resource Partners (ARLP), Alpha Natural Resources (ANRZQ), and Peabody Energy (BTU).

Next, we’ll take a look at Arch Coal’s leverage and liquidity position.

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