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Peabody Misses Earnings Estimates

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Peabody Energy Corporation (BTU - Free Report) reported fourth-quarter 2012 pro forma loss of $1.12 per share, below the Zacks Consensus Estimate of pro forma earnings of 26 cents per share and the year-ago earnings per share of 98 cents. The disappointing results were primarily due to lower top line coupled with increase in operating expenses.

Peabody’s GAAP loss during the fourth quarter of 2012 was $3.73 per share versus earnings of 92 cents per share reported in the year-ago quarter. The difference between GAAP and pro forma loss was due to an impact of $2.61 associated with asset impairment and closure of certain mines.

Peabody’s pro forma earnings for full-year 2012 were 84 cents per share, missing the Zacks Consensus Estimate of $1.98 per share. Annual earnings per share were below the 2011 level of $3.77 per share.

Peabody’s GAAP loss of 2012 was $1.80 per share versus earnings of $3.77 per share reported in the year-ago quarter. The variance between GAAP loss and pro forma earnings was due to an impact of $2.61 associated with asset impairment and closure of certain mines and 3 cents charge related to foreign income tax accounts.


Peabody’s quarterly revenue of $2.02 billion decreased 9.5% year over year due to a decline in both the U.S. and Australian mining revenue as well as a substantial reduction in revenue from trading and brokerage operations. However, the company’s revenue for the quarter surpassed the Zacks Consensus Estimate of $1.92 billion.

For full-year 2012, Peabody recorded revenue of $8.08 billion, up 2.3% year over year, primarily due to higher Australian volumes and improved realized pricing in the U.S. A 14% rise in Australian revenue also bolstered the annual top line. Improvement in Australian results was driven by an increase of 30% in shipments, and higher volumes from Wilpinjong and Millennium mines. The company’s full-year 2012 revenue beat the Zacks Consensus Estimate of $8.02 billion.

Operational Update

Peabody’s total sales volume in the quarter was 63.3 million tons, down 7% from the prior-year level. Quarterly sales volume declined due to 9.2% and 12.1% year-over-year dip in Midwestern and Western U.S. mining output, respectively. This was partially offset by 36.6% rise in Australian volumes.

Sales volume in 2012 reached 248.5 million tons, slightly missing last year’s sales of 249.4 million tons.

In addition, the company’s annual top line gained from increased Australian volumes and higher realized pricing in the U.S.

Revenue per ton, in the U.S., in 2012 increased 6.5% year over year to $22.61, while revenue per ton in Australia decreased 13% to $106.05.

Peabody’s full-year 2012 earnings before interest, tax, depreciation and amortization (“EBITDA”) were $1.84 billion, declining 13.2% from $2.12 billion in 2011. Operating profit in 2012 was $172.5 million compared with $1,595.7 million a year ago. The decline in operating profit was primarily due to certain assets impairment and mine closure costs.

Financial Update

As of Dec 31, 2012, Peabody had $558.8 million in cash and $548.4 million in inventories versus $799.1 million in cash and $444.4 million in inventories as of Dec 31, 2011.

Long-term debt of the company as of Dec 31, 2012, was $6.20 billion versus $6.56 billion as of Dec 31, 2011.

Peabody’s capital expenditure in the fourth quarter of 2012 was $255.2 million, bringing full year spending to $996.7 million.


Peabody expects first-quarter 2013 adjusted EBITDA to come in the range of $200 million to $270 million and adjusted loss per share in the band of 26 cents to 4 cents. However, the company cautioned that the first quarter 2013 results will be impacted by the timing of shipments in Australia, lower realized metallurgical coal pricing, and lesser U.S. sales and pricing.

For full-year 2013, the company is targeting total sales of 230 – 250 million tons, including 180 to 190 million tons from the U.S., 33 to 36 million tons from Australia and the remainder from Trading and Brokerage activities.

The company guides its full-year 2013 capital spending to $450 - $550 million, which is half of the 2012 level.

Our View

The company failed to beat both quarterly as well as annual earnings projections due to lower sales volume and decline in revenues per ton. However, the company’s annual revenue improved primarily due to an increase in Australian volumes.

Overall, the year 2012 was dull for the coal industry as the coal companies continues to face challenges from increasing usage of alternate energy for electricity generation, rising competition from natural gas producers, production-slash in manufacturing sector, mild winter and compliance with rising government regulations, which increased their operating costs.

Despite increased demand for metallurgical and thermal coal from China, Japan, India and some European countries, we expect the above mentioned reasons might weigh on the demand in the next couple of years.

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

St. Louis, Missouri-based Peabody Energy Corporation is a private sector coal mining company. The company has interests in 28 coal operations located in the U.S. and Australia, and has joint venture interests in a Venezuelan mine. Other players from the sector Natural Resource Partners LP (NRP - Free Report) , Wisconsin Energy Corporation (WEC - Free Report) and Clean Energy Fuels Corp. (CLNE - Free Report) are yet to announce their quarterly results.

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