U.S. coal producers head into the second-quarter earnings season in the wake of a new round of industry bankruptcies, weakening seaborne prices, logistical challenges and tough domestic sales prospects.
Seven of the 10 publicly traded coal companies analyzed by S&P Global Market Intelligence are expected to report lower EPS in the second quarter compared to the prior quarter. Despite the challenges facing the sector, only one of the nine companies, Foresight Energy LP, is expected to a report a loss.
“The first half of 2019 is in the books, and it wasn’t pretty for most coal equities,” Seaport Global Securities analyst Mark Levin concluded in a July 9 analyst note. “Not one coal equity outperformed the S&P 500.”
Two rail providers that provide services to the coal sector have reported results that included reduced domestic and export coal volumes in the recent quarter. Meanwhile, several producers in the sector are in the middle of Chapter 11 bankruptcy reorganizations, including large, pure-play Powder River Basin coal producer Cloud Peak Energy Inc.
Prices for metallurgical coal remain above five- and 10-year average prices but were still down from the prior year, Levin noted. Meanwhile, coal’s share of U.S. electricity generation in April declined to 25% from 27% the year before.
“Most investors expect the utility coal market to get worse before it gets better,” Levin wrote. “Most investors to whom we speak think the U.S. utility coal market will be worse in 2020 than in 2019.”