Earnings Preview: Arch Coal seen poised for growth

OVERVIEW: Shares of Arch and some other big coal companies have been Wall Street darlings lately, their profits stoked by booming prices of the fossil fuel.

In April, Arch reported first-quarter earnings that nearly tripled from a year earlier and handily beat analysts' expectations. The company also lifted its earnings forecast for 2008 to reflect higher prices for international and domestic metallurgical coal, used in steel production.

Also during the second quarter, Arch tapped John Drexler as the chief financial officer to replace Robert Messey, who retired. Drexler had been the company's vice president of finance and accounting.

It's not immediately clear to what extent Arch and its peers saw their shipping squeezed by last month's flooding that, for a time, closed off sections of the Mississippi River to barge traffic and disrupted some hauling by railroad.

Coal from Arch, which last year had revenues of $2.4 billion, fuels about 6 percent of all U.S. electrical generation.

BY THE NUMBERS: Analysts polled by Thomson Financial expect earnings per share of 64 cents and revenue of $737.1 million.

ANALYST TAKE: Earlier this month, Citi Investment Research analyst John H. Hill upgraded Arch and fellow St. Louis-based coal producer Peabody Energy to "Buy" from "Hold," citing a better outlook for the coal sector. Hill noted that coal prices had ballooned to 10-year highs, due in part to what Hill called "the confluence of mine disruptions, strength across the energy complex, and robust demand by emerging market countries such as Brazil, Russia, India and China.

WHAT'S AHEAD: Stifel Nicolaus analyst Paul Forward projects that U.S. coal supplies will fall short of demand by about 15 million tons this year and about 11 million tons in 2009, leading utilities to turn to their stockpiles to fuel their plants.

He also suggested that coal companies should reap big profits through 2010 as demand continues to outweigh supply. Forward's predictions are nearly 50 percent above Wall Street's average forecast for 2009 and 2010.