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UPDATE 2-Arch Coal cuts metallurgical production view; shares drop

Nichola Groom
Tuesday, 29 Oct 2013 | 1:57 PM ET

(Recasts with lower production outlook; adds CONSOL Energy results, analyst comment, Morgan Stanley note)

Oct 29 (Reuters) - U.S. coal miner Arch Coal Inc on Tuesday reported disappointing third-quarter results and cut its production outlook for steelmaking coal for the second time this year while rival CONSOL Energy Inc reported earnings that slightly topped estimates due to strict cost controls.

Both companies' shares fell, with Arch shares down 3 percent at $4.03 and CONSOL down 1.3 percent at $37.46.

Weak steel demand and excess supplies of metallurgical coal have depressed prices and hampered profits for coal miners. At the same time, abundant U.S. shale gas supplies are prompting power producers to switch to natural gas from coal, weighing on prices for thermal coal used to generate electricity.

Arch said it expects to ship 6.9 million to 7.3 million tons of metallurgical coal this year, down from a prior view of 7.7 million to 8.3 million tons. In July, the company had cut its production outlook from a prior view of 8 million to 9 million tons.

The company is cutting costs to weather the weak market, and lowered its outlook for capital spending, general and administrative expenses as well as its cash cost per ton for both its Powder River Basin and Appalachian operations.

"These companies are really clamping down on costs," said David Beard, an analyst at Iberia Capital Partners. "You are at a trough in the cycle, you don't know how bad it's going to get, and you keep cutting costs."

Arch Coal posted a quarterly net loss of $128.4 million, or 61 cents per share, compared with a profit of $45.8 million, or 22 cents per share, a year earlier.

Excluding one-time items, the company's loss was 1 cent per share. On that basis, the average analyst estimate was a loss of 31 cents per share, according to Thomson Reuters I/B/E/S.

But Morgan Stanley analyst Evan Kurtz said in a client note that excluding a $116 million gain on asset sales, the company's earnings before interest, tax, depreciation and amortization were $78 million, below the $108 million analysts were expecting.

Revenue fell 19 percent to $791.3 million on weak coal prices, missing analysts' expectations of $888.8 million.

During the quarter, Arch sold its Utah operations, receiving net cash proceeds of $423 million. Coal miners across the United States are discarding high-cost operations and Consol Energy said on Monday that it would sell five West Virginia coal mines amid regulatory uncertainty.

All U.S. coal miners are cutting costs aggressively, and analysts said those controls helped CONSOL Energy post an adjusted profit that beat Street expectations.

Adjusted earnings before interest, tax depreciation and amortization were $244 million, ahead of Wall Street's average estimate of $237 million, according to Thomson Reuters I/B/E/S.

Unlike other coal miners, CONSOL has benefited from a growing natural gas exploration business in the Marcellus and Utica shale plays. Some investors have been eager for the company to announce a split its coal and gas divisions.

(Reporting by Nichola Groom; Additional reporting by Swetha Gopinath; Editing by Leslie Adler)

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