James River Coal: A good company in an uncertain industry
Today's Financial News - Posted May 1, 2009
A good company is easy to spot. They are the ones putting profits in their shareholder’s pockets. One look at James River Coal today and it is obvious somebody must be doing something right.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): Good companies do good business and make their shareholders good money. It sounds overly simplified and vague, but if you take just a moment to contemplate the notion, it is impossible to argue.
Just compare James River Coal (NASDAQ:JRCC) to Bank of America (NYSE:BAC).
The bank is in the middle of a global controversy. Shareholders are lashing out at management. And the only folks getting rich are the executives running the place.
But at James River, the management is hitting the streets, signing strong contracts, shareholders are making money, and most importantly, the company remains strong even as its market deteriorates around it.
Shares of my favorite coal producer are surging by over 20% today after its latest earnings report beat the pants off analyst expectations. In a market where the coal industry’s future is far from certain, James River managed to turn a $16.7 million loss this time last year into a $28.2 million quarterly profit.
Much of the turnaround can be credited to the company’s uncanny ability to lock in favorable contracts. Even when coal demand is falling and prices are on the decline, James River was able to boast an average price of $90.91 per ton of its product, versus just $55.56 a year ago.
Now, if you have been following the company for the past several years, you should know those prices are not that big of a surprise. As I said in a January 2 article, about 85% of the company’s coal production is locked into contracts with prices higher than 2008’s figures.
Preparing for the future, not just next quarter
The company has been touting its favorable contracts for several quarters. The big question now is how will the company fare as those contracts come to an end? Will the company lock in new contracts or follow spot prices? The answer, as history has shown us, is somewhere in the middle.
James River is a strong company because of its small size and relative ability to adjust with the market. Its management understands the coal industry and locks in contracts accordingly. So far, it has done it with strong expertise.
There is no reason to think the company’s winning streak will come to an end, unless of course, the Obama administration has its way with the carbon industry. Then all bets are off.
For now, I am keeping my hopes for James River high and maintaining my positive outlook. If you have not yet looked into the company, wait until the next dip and consider grabbing some shares.
This is a good company, with good management. That means shareholders can expect good returns.
Next Article: Bears vs. Bulls: What about the pigs?
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