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Cash flow positive, profitability down for Arch Coal in 9M2014

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Feb. 3 2015, Updated 6:05 p.m. ET

Aggregate profitability

Arch Coal’s (ACI) overall adjusted earnings before interest, taxes, depreciation, and amortization (or EBITDA) came in at $279.6 million for 9M2014, down from $337.5 million for 9M2013.

Net losses increased to $318.2 million, $1.50 per share, in 9M2014, up from $270.6 million, $1.28 per share, in 9M2013. Note that a large chunk, $220 million, of 9M2013’s losses was attributed to noncash asset impairment costs.

Most of the major coal producers (KOL), including Peabody Energy (BTU), Alpha Natural Resources (ANR), and Walter Energy (WLT), reported net losses during the period.

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Cash flows

Arch Coal (ACI) remained cash flow positive at the operating level in spite of an ongoing difficult environment. Operating cash flows dropped to just $2 million in 9M2014 from $186.6 million in 9M2013.

The company almost halved its capital expenditure (or capex) as part of its cost-saving measures. The company incurred $118.7 million in capex in 9M14, almost half of the $223.2 million in 9M2013.

Free cash flows, which are derived by deducting capex from operating cash flows, came in at negative $116.7 million. Negative free cash flows suggest that the company is burning cash. During 9M2013, the company burned $36.6 million free cash.

Liquidity position

With low flexibility for additional borrowing, highly leveraged coal producers have to rely on available liquidity to survive the downturn. Continued cash burn has dented Arch Coal’s (ACI) cash and cash equivalents to $796 million as of September 30, 2014, from $1.1 billion a year earlier.

In the next part, we’ll discuss Arch Coal’s guidance for 2014 and 4Q2014.

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