Can James River Coal Earnings Recover?

James River Coal (NASDAQ: JRCC  ) will release its quarterly report on Friday, and the hard-hit coal producer doesn't look likely to escape the big losses that have plagued it for a long time. With analysts seeing James River Coal earnings stuck in the red for the foreseeable future, investors have to wonder how much longer the company can sustain ongoing losses of this magnitude.

James River Coal shares the same story as many of its coal-mining peers, as low natural gas prices hurt coal demand from utilities at the same time that weaker growth in emerging market nations hurt the metallurgical side of the coal business. Unlike larger companies, though, James River Coal doesn't have as many resources to weather an extended downturn in coal. Let's take an early look at what's been happening with James River Coal over the past quarter and what we're likely to see in its quarterly report.

Stats on James River Coal

Analyst EPS Estimate	($1.33)
Year-Ago EPS	($0.74)
Revenue Estimate	$195.07 million
Change From Year-Ago Revenue	(30%)
Earnings Beats in Past 4 Quarters	2

Source: Yahoo! Finance.

Can James River Coal earnings ever improve?
Analysts have actually become slightly less pessimistic in recent months about the prospects for James River Coal earnings, narrowing their loss projections by $0.03 per share for the June quarter and $0.14 for the full 2013 year. But expected losses are still enormous compared to its share price, and the stock has gotten hammered, falling another 25% since early May.

Conditions in the coal market continue to be tough, but many companies are adapting to the difficult situation in the industry. Peabody Energy (NYSE: BTU  ) has benefited from its low-cost coal supplies and has taken advantage of lucrative export markets, where natural gas prices are far less competitive and coal much more popular. Peers Arch Coal (NYSE: ACI  ) and CONSOL Energy (NYSE: CNX  ) have done their best to follow Peabody's lead into the export markets, with Arch signing a deal to give it greater export capacity and CONSOL owning its own terminal in Baltimore. By contrast, James River hasn't really pursued exports as an option, leaving it much more exposed to harsher regulation and plentiful natural gas supplies.

Indeed, at this point, James River is working hard simply to keep itself afloat. In May, the stock soared after the company announced a new financing deal that involved trading out more than $243 million of existing convertible debt for $123 million in new debt. Obviously, the reduction in outstanding principal owed is valuable, but James River had to offer much higher interest rates of 10%, compared to 3.125% and 4.5% on the existing notes, and the prices at which the debt is convertible into stock are also lower. Still, the deal bought James River three extra years on some of the notes before maturity.

The big question is whether James River will see improving conditions in coal prices before its debt comes due. Metallurgical coal prices remained much higher than thermal coal, with Energy Information Administration data showing worldwide met coal export prices of about $119 per ton, compared to thermal-coal prices of just $73 per ton. A boost in steel production could send met-coal prices even higher, potentially giving James River the revenue boost it needs to get closer to profitability.

In the James River Coal earnings report, watch closely to see how the recent debt restructuring affected the company's cash situation. With consistent negative cash flow in the past couple of quarters, cash burn will be an important element in determining how long James River can wait for better future conditions.

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