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Peabody's Loss Narrower than Expected

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Peabody Energy Corporation (BTU - Free Report) reported first quarter 2013 loss of 5 cents per share, much narrower than the Zacks Consensus Estimate of a loss of 14 cents. However, in the year-ago quarter the company had generated earnings of 68 cents per share.

The performance of the company was better than expected primarily due to its cost containment initiatives.

Peabody’s GAAP loss during the first quarter was 5 cents per share versus earnings of 65 cents per share reported in the year-ago quarter.


Peabody’s quarterly revenue was $1,748 million versus $2,020.7 million in the prior-year quarter, reflecting year-over-year decline of 13.5%.

The decline in total revenue was attributable to a 12% drop in U.S. coal revenue and a 6% decline in shipment. In addition, Australian revenue also declined 13.6% due to a 32% decline in realized pricing per ton, partly offset by a 26% increase in Australian shipments.

The company’s revenue for the quarter marginally fell short of the Zacks Consensus Estimate of $1,794 million.

Operational Update

Peabody’s total sales volume in the quarter was 57.2 million tons versus 61.4 million tons sold in the year-ago quarter. The decline in sales from Western U.S. Mining Operations and Midwestern U.S. Mining Operations offset the marginal improvement from Australia and Trading and Brokerage volumes.

Peabody continued with its cost cutting initiatives and was able to lower its operating costs and expenses. Costs declined 2.3% year over year to $1.38 billion. Selling and general expense followed a similar trend, declining 8.3% to $65.1 million.

Financial Update

As of Mar 31, 2013, Peabody had $629.5 million in cash and cash equivalents versus $558.8 million as of Dec 31, 2012.

Long-term debt as of Mar 31, 2013, was nearly $6 billion versus $6.2 billion as of Dec 31, 2012. The company repaid debt worth $100 million during the first quarter and intends to repay nearly $600 million during 2013.


Peabody expects second quarter 2013 EBITDA to come in the range of $240 million to $300 million and adjusted earnings per share in the band of (25 cents) to 1cent.

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

The company expects capital expenditure for 2013 in the range of $450 million to $550 million, down nearly 50% from 2012.

Peabody Energy expects to cut 2013 U.S. cost per ton by 2% to 3% from the prior year.

Other Company Releases

Arch Coal, Inc. is expected to release its first quarter results before the market open on Apr 23, 2013. The Zacks Consensus Estimate for the quarter is at a loss of 32 cents.

CONSOL Energy (CNX - Free Report) is expected to release its first quarter results on Apr 25, 2013. The Zacks Consensus Estimate for the quarter is 19 cents.

Alpha Natural Resources Inc. is expected to release its first quarter results before the market open on May 2, 2013. The Zacks Consensus Estimate for the quarter is pegged at a loss of 59 cents.

Our View

Peabody Energy once again reported earnings in the red, but its cost containment efforts and improvement in the global coal market are positive signs for the company. We are thus hopeful of the company’s performance in 2013.

There are signs of revival in global metallurgical coal demand. Infrastructural development in China is likely to drive global steel production, which in turn will increase the demand for met coal. In addition, the rise in natural gas price in the U.S. will also lead to gas-to-coal switching, which in a way will benefit Peabody‘s thermal coal production.

Globally, there will be an increase in the demand for coal for power generation and Peabody expects 75 gigawatts (GW) of new coal-fueled generation to come online worldwide in 2013. This will create a fresh demand of 50 million tones of thermal coal. We believe Peabody with its U.S. and Australian platform stands to benefit from the increase in demand for seaborne thermal coal.

St. Louis, Mo. based Peabody Energy Corporation is a private sector coal mining company. The company has interests in 28 coal operations located in the United States and Australia, and has joint venture interests in a Venezuelan mine. Peabody Energy Corporation currently retains a Zacks Rank #3 (Hold).

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