Arch Coal Posts Profit Gain, Cuts Forecast on Prices

Arch Coal Inc., the second-largest U.S. coal producer, said third-quarter profit more than doubled as cost reductions more than made up for a decline in prices. The company’s shares dropped as Arch cut its profit forecast and said it will slow production while prices are low.

Net income jumped to $50.9 million, or 35 cents a share after payment of dividends on preferred stock, from $18.9 million, or 13 cents, a year earlier, St. Louis-based Arch said today in a statement. Sales fell 7.3 percent to $610 million.

Arch widened its third-quarter profit margin to $2.60 per ton of coal sold from $1.40 a year earlier by reducing costs more than prices fell. The company said it will slow production by 13 million tons through the end of next year, joining Peabody Energy Corp. in waiting out the price slump.

“It looks bad for the near term because of soft prices,” said James Rollyson, an analyst at Raymond James Financial Inc. in Houston who rates Arch shares at “outperform” and doesn’t own any. “What’s interesting is how Arch and Peabody are both showing unusual discipline by cutting production to boost prices.”

Arch lowered its full-year projection for per-share profit excluding such items as costs for early debt retirement to $1.60 to $1.70 from a July prediction of $1.87 to $2.12. Third-quarter profit excluding one-time items was 37 cents a share, Arch said, 3 cents lower than the average estimate from 17 analysts surveyed by Thomson Financial.

Shares Fall

Shares of Arch slid $2.22, or 6.5 percent, to $32.04 in New York Stock Exchange composite trading. The stock has dropped 19 percent this year.

The company cut its costs per ton of coal sold by 17 percent from a year earlier to $13.71 after shedding higher-cost mines in the U.S. East to focus on cheaper mines in the West. The company’s average selling price fell 9.2 percent.

Prices for the highest grade of coal from Wyoming’s Powder River Basin, the nation’s biggest producing area, have fallen by almost half this year.

Cooler summer weather than a year earlier reduced demand for coal-fueled power generation, Arch said. Increased supplies from nuclear and hydroelectric generators also crimped demand, the company said.

Production Cuts

“They came in lighter than we expected” for third-quarter earnings, Rollyson said. “We knew that mild weather had hurt them, but they didn’t warn about it like the other majors did.”

Arch said it plans to slow production by 3 million tons in the fourth quarter. The company cut its 2007 output target by 10 million tons, to about 140 million tons.

St. Louis-based Peabody, the largest U.S. coal producer, yesterday said it lowered its 2007 output target by 7 million tons. The company posted a 25 percent gain in third-quarter profit, to $142 million.

Arch’s third-quarter sales by volume fell 9.7 percent from a year earlier to 32 million tons. The company said its sales from the Powder River Basin rose to 24.6 million tons from 22.5 million. Mines in the central Appalachian region sold 3.2 million tons of coal, down from 8 million tons in last year’s third quarter.