UPDATE 4-Arch Coal quarterly profit down but beats estimate

By Steve James NEW YORK, Oct 30 (Reuters) - Arch Coal Inc said on Friday that third-quarter profit dropped as it sold less coal at lower prices, but the mining company forecast demand rising, especially for steel-making coal, amid signs of an improving global economy. The company said it intended doubling its sales of metallurgical, or coking coal, to 4 million tons next year to tap demand from steelmakers and also to compete more actively in the export market in Asia. Arch shares were down 5.4 percent at $21.86 in afternoon trading, declining along with the wider market, after initially rising as much as 5 percent on the better-than-expected earnings and positive outlook. "We're seeing positive growth in the global economy," Chairman and Chief Executive Officer Steven Leer told Wall Street analysts, noting China has imported more than 75 million tons of coal this year. "The fast-growing Asia-Pacific market, along with the resumption of economic activity in the Atlantic markets, should open up even more opportunities for U.S. met and steam coal to move offshore in the coming months," he said. "Ongoing supply constraints here at home and around the world -- coupled with a rebound in energy demand globally -- will exert upward pressure on coal prices over the long term." Leer said Arch's recent acquisition of Rio Tinto's Jacobs Ranch mine -- adjacent to Arch's Black Thunder mine in Wyoming -- would position the company "for the upturn which we believe is just beginning to be reflected in coal demand." However, he said a large drop in demand for power-generating steam coal has caused stockpiles to build at U.S. power plants. "We could end the year with as much as 200 million tons of stockpiles which would represent a meaningful overhang as we head into 2010." Arch said third-quarter net earnings declined to $25.2 million, or 16 cents per share, compared with year-earlier earnings of $97.8 million or 68 cents per share. Revenue fell to $615 million from $769.5 million. Analysts were expecting 4 cents per share on revenue of $605.1 million, according to Thomson Reuters I/B/E/S. "It was a nice beat with very good operating performance," said analyst Jeremy Sussman, of Brean Murray Carret & Co. "But the strong results in Western Bituminous coal were offset by lower pricing for Central Appalachia as a whole." Arch said it sold 29.1 million tons in the quarter, down from 34.8 million tons in the same quarter of 2008, but an improvement on 27.4 million in the second quarter. The average sales price slipped to $20.05 from $20.38 a year earlier, but was higher than the $19.43 in the second quarter. In July, with coal prices slumping, Arch lowered its sales volume estimate for this year to between 114 million and 118 million tons. It said on Friday it now expects sales volume in the 121 million to 125 million ton range. Last year Arch sold 137.8 million tons of coal. It expects full-year 2009 earnings in the range of 28 to 43 cents per share. Analysts currently expect 31 cents. Arch completed the acquisition of Jacobs Ranch mine on Oct. 1, for about $764 million, which includes an estimate for working capital adjustments. The company estimates synergies from the transaction of between $45 million and $55 million annually, beginning in 2010. During the fourth quarter, Arch said it expects to record about $8 million of one-time acquisition-related expenses. (Reporting by Steve James; Editing by Steve Orlofsky, Dave Zimmerman and Matthew Lewis) Keywords: ARCHCOAL/ ([e-mail]; + 1 646-223-6013; Reuters Messaging: [e-mail]) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved.

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