Most publicly traded U.S. coal companies beat analysts' expectations in the second quarter despite recording earnings losses.
Only two publicly traded U.S. coal companies reported positive earnings per share in the period, Natural Resource Partners LP and Hallador Energy Co. Those two companies, alongside Arch Resources Inc., were also among the three companies in the sector that missed analysts' expectations.
"Despite extreme and historic challenges brought on by the pandemic, Hallador was profitable in the second quarter," said Hallador President and CEO Brent Bilsland on an Aug. 4 earnings call. "During the quarter, we took several actions to improve liquidity, reduce cost structure, pay down bank debt, all while helping our customers manage their inventory levels. Decisive actions enable us to increase our financial capabilities and ensure consistency at a time when the world was experiencing great volatility."
Coal companies saw a massive decrease in demand as the COVID-19 pandemic adds stress to a sector already experiencing a secular decline in domestic coal demand. Seaborne opportunities, which had provided an outlet for some producers, was also declining before the pandemic exacerbated reduced demand for coal abroad.
S&P Global Ratings wrote Aug. 17 that North American coal producers are up against "several intractable pressures," including stress from investors increasingly focused on environmental, social and governance criteria associated with their investments.
"With more investors citing ESG factors in restricting capital to the industry, many of the world's largest banks and asset managers are no longer financing new thermal coal projects," S&P Global Ratings wrote. "Some are even liquidating their holdings, which has contributed to declining share prices in the past year and widening yields on debt securities. As such, we view capital structures as increasingly unsustainable without some indication that new capital will emerge for refinancing in the next few years."
Ramaco Resources Inc. beat analysts' expectations by about 28.6%, reporting a loss of 5 cents per share against the consensus estimate of a loss of 7 cents per share.
"We are low debt. We're low [asset retirement obligations]. We're low mine cost. We're strong liquidity, and we've got a taste for being opportunistic," Ramaco Resources Executive Chairman Randall Atkins said on an Aug. 7 earnings call. "We're very comfortable with this operating philosophy, particularly in this kind of a market. And we operate to cover the downside in these, frankly, perilous times. When we see, finally, a little bit of upside, we feel we can react quickly. And hopefully, we'll be rewarded at some point for a degree of prudence."
Peabody Energy Corp. beat analysts' expectations by about 23.4%, reporting a loss of 98 cents per share versus a consensus of a $1.28 loss per share. Peabody President and CEO Glenn Kellow said on an Aug. 5 earnings call that preliminary data suggested coal demand was improving in July. Still, the company continues to scale back operations after eliminating about 450 positions since April.
"Notwithstanding this, the overall weak demand, coupled with depressed pricing, has required us to continue to aggressively pursue our cost repositioning program," Kellow said. "To date, we've made significant progress, and we have needed to, yet, still more needs to be done."