International Coal Q2 profit beats Street, shares rise

Kalimantan Coal

* Q2 EPS $0.03 tops est. of $0.02
* Q2 revenue $277.8 mln trails est. of $307.3 mln
* Cuts FY sales forecast to 18-18.5 mln tons
* Cuts FY production view to 17-17.5 mln tons
* Shares rise as much as 10 pct to $3.43 (Adds comments from analyst, conference call, share movement)
BANGALORE, July 27 (Reuters) – International Coal Group Inc (ICO.N) posted a second-quarter profit that beat market estimates by a cent and said the worst of the market weakness seemed to be over, sending its shares up 10 percent.
“Economic signals from Asia are somewhat encouraging, and we are hopeful that the U.S. economy will begin to recover during the second half of the year,” Chief Executive Ben Hatfield said in a conference call with analysts.
Most U.S. coal producers, especially those operating in the Appalachian region, have resorted to production cutbacks, mine closures and job cuts in a bid to maintain pricing and match plummeting demand from the utility and automotive end markets in the first half of the year.
“Despite the difficult economic climate, we are cautiously optimistic that the worst of the market weakness is behind us as metallurgical shipments have increased recently and utility prices appear to have stabilized,” Hatfield said.
The company which expects domestic coal producers to continue to roll back production in response to soft demand, estimates a total decline of 100 million to 125 million tons in 2009 U.S. production from the previous year.
The company also said it curtailed about 1.4 million tons of annual production at three mining complexes to mitigate the impact of reduced utility sales.
International Coal cut its 2009 coal production forecast to about 17 million to 17.5 million tons from 18.5 million to 19.1 million tons.
It expects full year sales of about 18 million to 18.5 million tons of coal in the same period, down from about 19.3 million to 19.9 million tons of coal.
Average selling price forecast for 2009 has also been slightly reduced to a range of $59.25 to $59.50 per ton from a $59.50 to $60.00 a ton for the company which produces steam and metallurgical (steelmaking) coal.
“Our costs are going to be flat to improving at this point… the production units that are being curtailed are the higher cost production units, so as you trim those higher cost units, it is generally bringing down the average (cost),” Hatfield said on the call.
Average costs have been estimated lower at $49 to $49.50 a ton, excluding selling, general and administrative expenses. The company had earlier projected average costs of $49.25 a ton to $50.75 a ton.
International Coal also said the West Virginia Department of Environmental Protection reinstated the permit for its Tygart facility, after remanding the same last year, but added it will not begin construction in the mine until all appeals against the reinstated permit are resolved.
The company also said it expected to remain in compliance with its debt payments for the rest of 2009, and that it “was looking” at 2010, when there will be a step up in the covenants.
“The covenants are certainly an issue for 2010. We anticipate they may have trouble meeting the interest coverage covenant without spot coal prices increasing further,” BGB Securities Inc analyst David Shapiro said.
“That said, the banks have already eased covenants for 2009 and given that there are no outstanding amounts on the line, we would anticipate the banks would likely work with them for 2010 if necessary,” he added.
The company which primarily produces coal in the Northern and Central Appalachian region said its margins per ton rose 55 percent to $11.32, helping it beat Wall Street forecasts. “Production was lower… but good cost control enabled International Coal to maintain our earnings per share forecast,” J.P. Morgan Securities analysts John Bridges and Ankush Agarwal wrote in a note.
The company said it sold 4.2 million tons of coal in the second-quarter, or all its produce, compared to 4.9 million tons in the prior year’s quarter.
Excluding a $7.7 million gain related to the termination of a high-cost coal supply agreement, the company earned 3 cents per share.
In the latest quarter, the company’s net income dropped to $10.4 million, or 7 cents a share, from $13.8 million, or 8 cents a share, a year ago.
Revenue for the Scott Depot, West Virginia-based company was almost flat at $277.8 million.
Analysts, on average, expected a profit of 2 cents a share, before items, on revenue of $307.03 million, according to Reuters Estimates.
The company said its third-quarter results will reflect a gain of $27 million from the termination of contracts for 1 million tons per year, valid through 2011.
Shares of the company pared some of its gains to trade up 8 percent at $3.32 Monday afternoon on the New York Stock Exchange, amid a 2 percent pull-back in the Dow Jones US Coal Index .DJUSCL triggered by disappointing second-quarter results by Alpha Natural Resources Inc (ANR.N).
“Reinstatement of the Tygart permit and the $27 million settlement for two coal supply agreements are viewed positively by the market, in our opinion,” the analysts said. (Reporting by Antonita Madonna Devotta in Bangalore; Editing by Jarshad Kakkrakandy)

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