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ARCH RESOURCES, INC. (ARCH)·Q1 2024 Earnings Summary

Executive Summary

  • Q1 2024 revenue and earnings declined sequentially and year over year due to weaker coking coal pricing, logistics disruptions (Curtis Bay force majeure and the Francis Scott Key Bridge collapse), and lower thermal demand; revenues were $680.2M, diluted EPS $2.98, adjusted EBITDA $102.9M .
  • Metallurgical segment remained resilient with first-quartile costs and a $56/ton cash margin; management maintained full-year coking volume guidance (8.6–9.0Mt) despite Baltimore port constraints, targeting heavier shipments in 2H24 .
  • Thermal segment was effectively break-even with PRB losses amid high utility stockpiles and sub-$2 Henry Hub gas; West Elk offset partially, with expectation for improvement in 2H24 as PRB stripping realigns to lower shipments .
  • Capital returns continued: $20.7M dividend ($1.11/share) and 3% diluted share count reduction via unwinding capped calls and $15.7M buybacks; net cash ended at $174.0M .
  • Near-term stock catalysts: timing of Baltimore harbor reopening, coking coal price trajectory, PRB cost normalization, and pace of share repurchases given Q2 working capital build .

What Went Well and What Went Wrong

  • What Went Well

    • “Core metallurgical segment… delivered another first-quartile cost performance, achieved a $56 per-ton cash margin and generated substantial discretionary cash flow,” per CEO Paul Lang .
    • Portfolio is transitioning into “increasingly favorable geologic conditions,” with Leer South expected to step up in 4Q as it advances into District 2; met cash costs expected to trend toward mid/high-$80s/ton in 2Q .
    • Capital return discipline: $20.7M dividend, ongoing buybacks, and cumulative >$1.3B returned since 2022; diluted share count cut by 3% in Q1 .

  • What Went Wrong

    • Logistics headwinds: Curtis Bay weather and maintenance disruptions, followed by the Key Bridge collapse, delayed ~165kt of export coal; main channel likely closed until end-May, constraining Q2 shipments .
    • Thermal pressure: PRB operated at a loss as stripping rates exceeded shipments amid weak domestic demand (mild winter, low gas prices, high utility stockpiles); segment cash margin per ton turned negative in Q1 .
    • Pricing: Seaborne coking prices fell from ~$285/mt in Dec to ~$220/mt High-Vol A in late Q1; management flagged near-term capital returns in Q2 could be dampened by working capital build .

Financial Results

MetricQ1 2023Q4 2023Q1 2024
Revenue ($USD Millions)$869.9 $774.0 $680.2
Net Income ($USD Millions)$198.1 $114.9 $56.0
Diluted EPS ($)$10.02 $6.07 $2.98
Adjusted EBITDA ($USD Millions)$277.3 $180.0 $102.9
Segment MetricQ1 2023Q4 2023Q1 2024
Metallurgical Segment Sales ($USD Millions)$440.1 $395.3 $322.8
Metallurgical Tons Sold (Millions)2.2 2.3 2.2
Metallurgical Segment Adjusted EBITDA ($USD Millions)$263.1 $193.6 $129.5
Thermal Segment Sales ($USD Millions)$314.7 $277.9 $225.6
Thermal Tons Sold (Millions)17.0 15.5 12.8
Thermal Segment Adjusted EBITDA ($USD Millions)$46.3 $26.7 $0.9
Total Segment Cash Margin ($USD Millions)$307.9 $219.0 $119.1
KPI (per ton)Q1 2023Q4 2023Q1 2024
Met Coal Sales per ton ($)$204.25 $169.42 $149.98
Met Cash Cost per ton ($)$82.66 $86.51 $94.31
Met Cash Margin per ton ($)$121.59 $82.91 $55.67
Thermal Sales per ton ($)$18.49 $17.89 $17.60
Thermal Cash Cost per ton ($)$15.79 $16.25 $17.65
Thermal Cash Margin per ton ($)$2.70 $1.64 $(0.05)
Actual vs Estimates (Q1 2024)RevenueEPS
Actual$680.2M $2.98
S&P Global ConsensusN/A – unavailable due to data mapping issueN/A – unavailable due to data mapping issue

Note: Attempted to retrieve S&P Global consensus via GetEstimates but mapping was unavailable for ARCH; comparisons to Street estimates could not be provided (tool error).

Guidance Changes

MetricPeriodPrevious Guidance (Q4 2023)Current Guidance (Q1 2024)Change
Coking Sales Volume (Mt)FY 20248.6–9.0 8.6–9.0 Maintained
Thermal Sales Volume (Mt)FY 202450.0–56.0 50.0–56.0 Maintained
Committed, Priced Coking NA (Mt, $/ton)FY 20241.5 @ $157.65 1.5 @ $157.41 Price lowered
Committed, Priced Coking Seaborne (Mt, $/ton)FY 20240.1 @ $201.35 1.8 @ $165.72 Volume raised; price lowered
Committed, Unpriced Coking Seaborne (Mt)FY 20242.7 3.7 Raised
Total Committed Coking (Mt)FY 20244.3 7.0 Raised
Committed, Priced Thermal Byproduct (Mt, $/ton)FY 20240.2 @ $28.75 0.4 @ $31.05 Raised
Committed, Unpriced Thermal Byproduct (Mt)FY 20240.3 0.2 Lowered
Avg Metallurgical Cash Cost ($/ton)FY 2024$87–$92 $87–$92 Maintained
Committed, Priced Thermal (Mt, $/ton)FY 202452.8 @ $17.09 52.8 @ $17.16 Price raised
Committed, Unpriced Thermal (Mt)FY 20241.4 0.9 Lowered
Total Committed Thermal (Mt)FY 202454.2 53.7 Lowered
Avg Thermal Cash Cost ($/ton)FY 2024$16–$17 $16–$17 Maintained
D, D&A ($M)FY 2024$165–$175 $165–$175 Maintained
ARO Accretion ($M)FY 2024$23–$25 $23–$25 Maintained
SG&A – Cash ($M)FY 2024$72–$76 $72–$76 Maintained
SG&A – Non-cash ($M)FY 2024$22–$25 $22–$25 Maintained
Net Interest Income ($M)FY 2024$0–$5 $0–$5 Maintained
Capital Expenditures ($M)FY 2024$160–$170 $160–$170 Maintained
Cash Tax Payment (%)FY 20240–5% 0–5% Maintained
Income Tax Provision (%)FY 202414–18% 14–18% Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2: Q3 2023; Q-1: Q4 2023)Current Period (Q1 2024)Trend
Logistics and export routingNoted Leer South geology constraints; capital return model shift; no major port closures in Q3 . In Q4, Curtis Bay weather/maintenance disruptions early Q1; view impacts as timing-related .Force majeure and Key Bridge collapse closed Baltimore; redirecting volumes to DTA; Q2 met sales 1.9–2.2Mt dependent on reopening; production unaffected .Elevated complexity near term; mitigation via DTA; expected normalization late Q2/Q3.
Metallurgical costs and volumesQ3: first-quartile costs; met cash cost $96.63/ton; EBITDA $128.3M . Q4: sequential cost down 10%; met EBITDA $193.6M .Q1: met cash cost $94.31/ton; $56/ton margin; guidance maintained; costs expected mid/high-$80s in Q2 .Costs trending modestly lower 2H24; volumes heavier in 2H.
Thermal PRB operationsQ3: PRB margin low; segment EBITDA $23.4M; sold-out 2024 at fixed prices . Q4: Thermal EBITDA $26.7M; West Elk strong .Q1: PRB operated at loss; excess stripping to benefit 2H24; thermal segment near break-even; expect Q2 still pressured .Near-term headwinds; 2H recovery expected as operations realign.
Capital return emphasisQ3: increased weighting of buybacks; $21.6M dividend; repurchased 215,551 shares . Q4: $31.6M dividend; building cash for opportunistic buybacks .Q1: $20.7M dividend; retired 315,721 shares via capped calls + 94,701 repurchased; >$1.3B returned since 2022 .Continued returns with share count reduction focus.
Market/pricingQ3: HV-A assessed ~$277/mt; constructive supply dynamics . Q4: HV-A ~$262/mt; PLV ~$315/mt .Q1: HV-A ~$220/mt; seaborne thermal Newcastle ~$130/mt; API-2 ~$120/mt .Softer met pricing in Q1; signs of base forming; watch recovery.
ESG/safetyQ3: awards; exemplary performance . Q4: Leer achieved TSM Level A; zero SMCRA violations .Q1: Governor’s Milestones of Safety Award (Leer, Leer South) and Greenlands Award; low incident rate .Sustained leadership.

Management Commentary

  • “These solid results underscore yet again Arch’s durable cash-generating capabilities – as well as the value-creating power of our robust capital return program – across a wide range of market environments.” – CEO Paul Lang .
  • “We anticipate ongoing improvements in both production levels and unit costs, culminating in a step-up in output at Leer South as we advance into the second longwall district in the fourth quarter of 2024.” – President John T. Drexler .
  • “Looking ahead… while the Baltimore port closure is likely to constrain Q2 coking coal shipments… we believe we are exceptionally well-positioned… to continue to generate solid levels of discretionary cash flow even in the face of near-term market softness.” – CEO Paul Lang .
  • “Annual share count reduction is our clear priority… The board has approved a quarterly dividend of $1.11 per share today.” – CFO Matt Giljum .

Q&A Highlights

  • Portfolio diversification vs core focus: Management emphasized operating “very large, very efficient, very low-cost mines” and having two “big horses” in coking coal (Leer/Leer South); DTA investment adds routing flexibility .
  • PRB costs/volumes: Excess stripping created pit inventory; Q2 seasonally pressured, but costs being actively managed (schedules, overtime, headcount, equipment) with expected cash-positive back half .
  • Met volumes/costs: Leer expected to return to typical run rate post power line relocation ($9.1M compensation recorded as other income); met cash cost guidance mid/high-$80s/ton for Q2 .
  • Baltimore contingency: Alternatives include continued DTA usage, midstreaming, river/Gulf routing; Corps guidance still points to late-May main channel reopening .
  • Demand trends: Growing Asian customer interest in HV-A; multi-year term discussions; global hot metal output ex-China up ~2% YTD; long-term supply constraints supportive .

Estimates Context

  • S&P Global consensus estimates for Q1 2024 could not be retrieved due to a CIQ mapping issue for ARCH in the tool; therefore, formal Street comparisons (beat/miss) are unavailable for this recap. We attempted retrieval via GetEstimates but received a mapping error (tool failure).
  • Based on actuals, Street models may need to reflect: logistics-driven Q2 timing impacts, lower met realizations vs Dec levels, and thermal headwinds, with 2H24 normalization as shipments and costs improve .

Key Takeaways for Investors

  • Near-term: Expect softer Q2 capital returns due to working capital build and constrained export shipments; watch Baltimore reopening timing and DTA throughput; met costs should improve toward mid/high-$80s/ton .
  • Medium-term: Full-year met volume guidance maintained (8.6–9.0Mt) with heavier 2H shipments; Leer South District 2 geology supports output step-up beginning 4Q .
  • Thermal reset: PRB losses in Q1/Q2 tied to over-stripping vs shipments; realignment actions underway with expected cash-positive thermal contribution in 2H24; West Elk remains a stabilizer .
  • Capital returns: Management remains committed to returning effectively 100% of discretionary cash flow, with emphasis on share count reduction; dividend policy continues alongside opportunistic buybacks .
  • Valuation drivers: Met price base forming after Q1 decline; long-term supply constraints (underinvestment, ESG limits) constructive; growing Asian demand and customer base for HV-A supports multi-year volume mix .
  • Risk monitors: Seaborne logistics (port capacity), PRB demand/utility stockpiles, coking coal price trajectory, and domestic gas prices; execution on cost and routing plans will determine 2H24 margin trajectory .