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Peabody Energy Corporation (BTU - Analyst Report), world’s largest private-sector coal company, is scheduled to report its third-quarter 2012 financial results on October 22, 2012.

Second-Quarter Recap   

Peabody reported second-quarter 2012 earnings of 73 cents per share, beating the Zacks Consensus Estimate of 53 cents. However, the company’s quarterly earnings were lower than last year’s earnings of $1.16 per share. The year-over-year decline was due to higher interest expenses and depreciation, depletion and amortization expenses related to the acquisition of Macarthur Coal in Australia.

The company’s second-quarter 2012 revenue was $1,998.2 million versus $1,980.5 million in the prior-year quarter, reflecting a year-over-year growth of 0.9%. Quarterly revenue fell short of the Zacks Consensus Estimate of $2,067 million.

Third-Quarter & Full-year 2012 Guidance

Peabody expects third-quarter 2012 adjusted earnings per share to be in the band of 20 cents to 45 cents, and earnings before interest, tax, depreciation and amortization (“EBITDA”) to be in the range of $350 million to $450 million.  

For full-year 2012, the company is targeting total sales of 230 - 250 million tons, including 31 - 34 million tons from Australia, 185 - 195 million tons from the U.S. and the remainder from Trading and Brokerage activities.

Zacks Consensus  

The Zacks Consensus Estimate for third-quarter 2012 earnings is 34 cents per share, lower than 87 cents per share reported in the prior-year quarter. Currently, the Zacks Consensus Estimate for the company’s earnings ranges between 20 cents and 40 cents per share.

For full-year 2012, the Zacks Consensus Estimate stands at $1.77 per share, lower than the prior-year earnings of $4.17 per share. The current Zacks Consensus Estimate for full-year 2012 ranges from $1.48 to $2.13 per share.

Estimate Revisions Trend

Agreement

For third-quarter 2012, we have observed that, in the last 7 days, 2 estimates have moved upward, while 1 estimate went in the downward direction. Over the last 30 days, 1 estimate has moved upwards whereas 5 estimates moved in the downward direction.

For full-year 2012, none of the estimates have moved upwards whereas 3 estimates have moved downwards in the last 7 days. In the last 30 days, none of the estimates have moved upwards whereas 9 estimates followed a downward trend.

Magnitude

In the last 7 days, the Zacks Consensus Estimate for third-quarter 2012 earnings remained unchanged.

In the last 30 days, the Zacks Consensus Estimate for third-quarter 2012 earnings per share declined by a penny to 34 cents from 35 cents.

In the last 7 days, the Zacks Consensus Estimate for full-year 2012 earnings per share dropped by 4 cents to $1.77 from earlier projection of $1.81.

In the last 30 days, the Zacks Consensus Estimate for full-year 2012 earnings per share plummeted 15 cents to $1.77 from earlier projection of $1.92.

Surprise History

With respect to the earnings surprises, Peabody Energy Corporation has topped the Zacks Consensus Estimate in three quarters out of the last four quarters. Over the last four quarters, the surprise ranges from -2.25% to 37.74% with an average of 14.75%.

Our Recommendation

We believe that slow recovery of the U.S. economy and the lower gas prices are challenging the coal demand in the domestic market. In the international space, coal demand was negatively impacted due to reduction in electricity generation and planned production slow down in the manufacturing sector. These factors primarily influenced Peabody to cut its 2012 capital expenditure budget by $200 million to $1.0 billion.  

Peabody Energy Corporation currently has short-term Zacks #5 Rank (Strong Sell rating).

St. Louis, Missouri-based Peabody Energy Corporation is the world’s largest private- sector coal mining company and a global leader in clean coal solutions. The company owns majority interests in 29 mines in the U.S. and Australia. With a market capitalization of $7.36 billion, Peabody has 8,300 full time employees. The company’s closest peer is CONSOL Energy Inc. (CNX - Analyst Report).
 

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