Peabody Energy Corp. (BTU) reported third quarter 2013 earnings of 5 cents per share, beating the Zacks Consensus Estimate of a loss of 3 cents. However, earnings were 90.6% lower than 53 cents generated in the year-ago quarter.
Peabody’s GAAP earnings during the third quarter were 6 cents per share versus 46 cents per share reported in the year-ago quarter. A penny difference between GAAP and operating earnings was due to an income tax gain of a cent.
Revenue
Peabody’s quarterly revenue was $1,797.6 million versus $2,058.8 million in the prior-year quarter, reflecting a year-over-year decline of 12.7%.
The decline in total revenue was due to the lower realized price of coal in the U.S. and Australia.
The company’s revenue for the quarter marginally fell short of the Zacks Consensus Estimate of $1,813 million by 0.8%.
Operational Update
Peabody’s total sales volume in the quarter was 69.1 million tons versus 66.6 million tons sold in the year-ago quarter. The increase in sales was primarily due to a better performance from the Australian Mining operation and Trading and Brokerage operation.
Peabody continued with its cost cutting initiatives and was able to lower its operating costs and expenses by 4.6%.
Financial Update
As of Sep 30, 2013, Peabody had $551.3 million in cash and cash equivalents versus $558.8 million as of Dec 31, 2012.
Long-term debt as of Sep 30, 2013, was nearly $5.97 billion versus $6.2 billion as of Dec 31, 2012.
Peabody Energy has extended and expanded its existing credit facility in the third quarter. The new credit facility comprises a $1.65 billion revolver due in 2018 and a seven-year $1.2 billion term loan due in 2020. These replace a $1.5 billion revolver due in 2015 and a $1.2 billion term loan due in 2016.
The company made full use of the favorable market conditions in the reported quarter to extend its credit facility. The extension of the maturity period will allow the company to use the capital more prudently once the coal market recovers from its present slump.
Guidance
Peabody expects 2013 EBITDA to come in the range of $1.070 billion to $1.150 billion and adjusted earnings per share in the band of 27 cents to 45 cents.
For full-year 2013, the company’s total sales target is 245–255 million tons, including 34–36 million tons from Australia, 185–190 million tons from the U.S. and the remainder from Trading and Brokerage activities.
The company maintained its capital expenditure for 2013 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 lowered its 2013 Australian cost targets to the mid-$70 per ton range.
Other Upcoming Releases
Arch Coal, Inc. (ACI) is expected to release its third quarter results before the market opens on Oct 29, 2013. The Zacks Consensus Estimate for the quarter is at a loss of 30 cents.
CONSOL Energy (CNX) is expected to release its third quarter results on Oct 31, 2013. The Zacks Consensus Estimate for the quarter is 6 cents.
Alpha Natural Resources Inc. (ANR) is expected to release its third quarter results before the market bell on Oct 31, 2013. The Zacks Consensus Estimate for the quarter is pegged at a loss of 77 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. However, the lower realized price of the tons sold led to lower gross margins, impacting the year-over-year comparisons of the company.
The company expects 1.2 billion tons of incremental demand for thermal coal by 2017 globally as 400 gigawatts of new coal generation unit are expected to be added over that time period. In addition, steel production is estimated to grow 15% during this period, requiring an additional 150 million tons per year of metallurgical coal.
We believe Peabody’s exposure in the prime coal producing regions of the U.S. besides its presence in Australia will help it to capitalize on the surge in demand for both varieties of coal.
Peabody Energy Corp. currently holds a Zacks Rank #2 (Buy).
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