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CHARLESTON — Coal producers are making further cuts in production as the recession throttles demand for energy and steel, undermining second quarter sales and profits, three of the nation's largest producers said Monday.
Abingdon, Va.-based Alpha Natural Resources blamed the weakness for a 77 percent decline in its second-quarter profit. Rivals Foundation Coal Holdings and International Coal Group said they continued to reduce production because electric utilities are unwilling to take more deliveries and have stopped buying thermal coal on the spot market altogether.
Alpha said it earned $15.4 million, or 22 cents per share, in the quarter, down from $67.1 million, or 94 cents per share, a year earlier. Coal revenue dropped to $333.9 million, from $604.7 million. Analysts polled by Thomson Reuters expected, on average, Alpha to report a profit of 38 cents per share on revenue of $446.3 million.
Linthicum Heights, Md.-based Foundation said it earned $30.7 million, or 67 cents per share, in the quarter, including $4.8 million in one-time, pretax expenses related to a proposed $1.4 billion takeover by Alpha. Foundation lost $4.4 million, or 10 cents per share, in second-quarter 2008. Analysts were expecting 71 cents per share on $445.2 million in revenue.
Scott Depot, W.Va.-based ICG said it earned $10.4 million, or 7 cents per share, compared with $13.8 million, or 8 cents per share, in second-quarter 2008. ICG said the 2009 results included a non-cash $7.7 million gain related to terminating a coal sales deal, while the second-quarter 2008 numbers included a $24.6 million gain on a property swap. Revenue from operations in West Virginia, Kentucky, Maryland, Virginia and Illinois was essentially flat at $277.8 million, compared with $277.9 million in 2008. Analysts were predicting 2 cents per share on $307.33 million in revenue.
All three saw demand falter, though they continued to benefit from contracts signed in 2008, when prices more than doubled in some cases.
ICG Chief Executive Ben Hatfield told analysts during a conference call that there are signs the market is stabilizing.
"We are cautiously optimistic that the bottom of the market was reached in mid-April," Hatfield said. "Coal demand remains very weak and meaningful thermal production recovery may not occur until 2010.
"We expect the coal producers will continue to curtail production."
Foundation, for instance, said its coal sales dipped to 16.4 million tons from 17 million tons and coal sales revenue declined to $399 million from $404.8 million a year earlier. The amount of money Foundation received per ton sold rose 19 percent in central Appalachia, 18 percent in northern Appalachia and 7 percent in Wyoming. Costs, meanwhile, dropped $50.8 million to $279.5 million, from $330.2 million in second-quarter 2008.
ICG said it shipped 600,000 fewer tons than expected during the quarter and slashed production 1.4 million tons.
Separately, ICG said one of its customers has agreed to pay $27 million to get out of supply contracts calling for 1 million tons annually. The payments are expected by Friday and ICG says they will be reflected in its third-quarter results.
Foundation, which said it's negotiating with utilities that want to delay deliveries, further reduced production plans. Foundation now expects to produce between 68.5 million and 71.5 million tons in 2009, down from an earlier range of 70 million to 73 million tons.
Alpha and Foundation shareholders are due to vote on their proposed deal Friday. Combined, they would be the nation's third-largest coal producer, with mines in Pennsylvania, West Virginia, Virginia, Kentucky and Wyoming.
