Peabody Energy Corporation (BTU) reported second quarter 2013 earnings of 33 cents per share, trumping the Zacks Consensus Estimate of a loss of 5 cents. However, earnings were 54.8% lower than 73 cents generated in the year-ago quarter.
Peabody’s GAAP earnings during the second quarter were 39 cents per share versus 78 cents per share reported in the year-ago quarter. The difference between GAAP and operating earnings was due to an income tax gain of 14 cents and asset impairment charge of 8 cents.
Revenue
Peabody’s quarterly revenue was $1,725.3 million versus $1,981.1 million in the prior-year quarter, reflecting a year-over-year decline of 12.9%.
The decline in total revenue was attributable to lower realized price of coal and lower contribution from the Trading and Brokerage segment.
The company’s revenue for the quarter marginally fell short of the Zacks Consensus Estimate of $1,823 million by 5.3%.
Operational Update
Peabody’s total sales volume in the quarter was 60.8 million tons versus 57.2 million tons sold in the year-ago quarter. The decline in sales from Midwestern U.S. Mining Operations was more than offset by higher Western U.S. Mining Operations, Australia and Trading and Brokerage sales volumes.
Peabody continued with its cost cutting initiatives and was able to lower its operating costs and expenses. The cost-cutting initiatives allowed the company to lower its U.S. and Australian costs by 6%.
Financial Update
As of June 30, 2013, Peabody had $517.9 million in cash and cash equivalents versus $558.8 million as of Dec 31, 2012.
Long-term debt as of Jun 30, 2013, was nearly $5.96 billion versus $6.2 billion as of Dec 31, 2012. The company repaid debt worth $100 million during the second quarter.
Guidance
Peabody expects third quarter 2013 EBITDA to come in the range of $210 million to $270 million and adjusted earnings per share in the band of (16 cents) to 9 cents.
For full-year 2013, the company reiterated its total sales target 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 lowered its capital expenditure for 2013 by $100 million to a range of $350 million to $450 million.
Peabody Energy expects to cut 2013 U.S. cost per ton by 2% to 3% from the prior year and also lower its 2013 Australian cost targets to the mid-$70 per ton range.
Other Company Releases
Arch Coal, Inc. (ACI) is expected to release its second quarter results before the market open on Jul 30, 2013. The Zacks Consensus Estimate for the quarter is at a loss of 32 cents.
CONSOL Energy (CNX) is expected to release its second quarter results on Jul 25, 2013. The Zacks Consensus Estimate for the quarter is 19 cents.
Alpha Natural Resources Inc. (ANR) is expected to release its second quarter results before the market open on Aug 2, 2013. The Zacks Consensus Estimate for the quarter is pegged at a loss of 60 cents.
Our View
During the reported quarter, Peabody Energy was able to register an increase in sales volume and its cost-containment initiatives led to the positive earnings surprise. Despite the softness in sales price per ton, the performance of the company in the reported quarter was commendable.
Global coal demand has yet to recover fully and the supply glut is bringing down the selling price of coal. In such a scenario, Peabody decided to lower its operating expenses by reducing its work force in Australia.
However, there are indications that coal demand will improve from current levels. In the U.S., the rise in natural gas price will boost the demand for thermal coal. The global demand for thermal coal is also expected to improve over the next few years, with 425 gigawatts of new coal-fired generation expected to come online by the 2012 to 2017 period.
The World Steel Association projects nearly 3% year-over-year growth in global steel usage in 2013 and 2014. Positive steel fundamentals can drive the demand for Peabody’s premium coal.
St. Louis, MO-based Peabody Energy Corporation 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 #4 (Sell).
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