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Coal companies bullish in initial earnings as jobs rise, output slides in Q2'17

As second-quarter earnings reports rolled in this week, U.S. coal companies expressed confidence over a potential industry recovery, as mining jobs showed signs of improvement despite a slight decline in production.

Asked how he would change Arch Coal Inc. if he could "wave a magic wand" to fit current coal markets, CEO and Director John Eaves said he believes Arch could use some more streamlining to boost its cost structure. "We're laser-focused on cost control, making sure that we manage the balance sheet very effectively and we return value to our shareholders," Eaves said. "I mean, that's — what a difference a year makes, but we feel good about where we are today and where we're going."

Seaport Global Securities LLC shared the same bullishness for Peabody Energy Corp., saying that "the company is in position to generate substantial value through deleveraging, buying back stock and dividends," following its recent emergence from bankruptcy. The giant coal producer posted net income of $98.7 million in the second quarter, with adjusted EBITDA of $317.8 million and improved average costs per ton.

The company also announced plans to reduce debt and authorize a $500 million share repurchase program, causing its stock to rise from $28.04 at close July 31 to $29.98 just before the company's call with investors the next day.

The same holds true for Cloud Peak Energy Inc., which posted better-than-expected coal sales and costs in the period. "We're very proud of what we achieved in the first half of the year. It's obviously greatly up on where we were in the outlook for this time last year," said Cloud Peak CEO, President and Director Colin Marshall on July 27.

Alliance Resource Partners LP reported that despite the unforeseen impact from customer force majeure events and shipment deferrals throwing off sales by 1 million tons, performance in the second quarter was in line with expectations, with net income attributable to Alliance of $63.2 million in the second quarter, adjusted EBITDA of $132.9 million and lower average costs per ton. Alliance President, CEO and Director Joseph Craft said the company is optimistic about the second half of the year.

Other coal companies that reported quarterly earnings results this week were Warrior Met Coal Inc., Westmoreland Coal Co., CNX Coal Resources LP and NACCO Industries Inc.

Warrior reported net income of $129.9 million in the second quarter, with adjusted EBITDA of $188.5 million.

Westmoreland reported a net loss of $50.5 million, with adjusted EBITDA of $32.6 million.

CNX Coal posted net income of $11.5 million, with adjusted EBITDA of $25.0 million and higher average costs per ton.

NACCO reported net income of $6.8 million, with adjusted EBITDA of $15.2 million.

With nearly all second-quarter data reported to the U.S. Mine Safety and Health Administration, an S&P Global Market Intelligence analysis showed a small uptick in coal mining jobs, despite a slight quarter-to-quarter decline in production. Average coal mining employment increased by 258 jobs, while total coal production from 544 reporting mines was about 185.7 million tons in the second quarter, down from 197.2 million tons in the prior quarter.

However, coal jobs in Kentucky ran counter to job numbers across the country, as the state continues to feel the impact of the coal industry's decline. According to data from the state government, the average number of jobs in the coal industry in the second quarter of 2017 was 6,364, compared to the 6,564 in the first quarter, a 3% decrease.

Finally, the week saw Murray Energy Corp. suing CSX Transportation Inc. for the railroad's alleged failure to provide reliable service to the coal producer and to recover resulting damages.

Robert Murray, chairman, president and CEO, said the coal producer was forced to file these lawsuits and request intervention by the U.S. Surface Transportation Board "in order to hold CSX accountable for their gross lack of service, flagrant disregard for our agreements, and their lack of effectively doing anything to correct their failures to provide contracted service mandated by the federal government."

Other coal producers including Arch Coal Inc. and CNX Coal Resources LP have also expressed frustration over CSX delays and service issues.

Future events:

American Coal Council: ACC will host its Coal Market Strategies Conference 2017 on Aug. 14-16 in Park City, Utah.