Coal producer Peabody Energy Corporation (BTU) reported a loss of $1.21 per share in the fourth-quarter 2014, much wider than the Zacks Consensus Estimate of a loss of 36 cents, resulting in a negative surprise of 236.1%. Peabody had posted breakeven results in fourth-quarter 2013.
Peabody’s GAAP loss during the fourth quarter of 2014 was $1.79 per share compared with a loss of $1.52 per share in the year-ago quarter. The difference between GAAP and pro forma numbers was due to an impact of 57 cents associated with asset impairment and a 1 cent expense from foreign income tax account.
Peabody incurred a loss of $2.27 per share in 2014, wider than the Zacks Consensus Estimate of a loss of $1.41. The company had reported earnings of 34 cents per share in 2013.
Revenue
Peabody’s quarterly revenues of $1.69 billion decreased 3.3% year over year but surpassed the Zacks Consensus Estimate of $1.63 billion by 3.1%.
In 2014, Peabody recorded revenues of $6.79 billion, down 3.2% year over year. The top line surpassed the Zacks Consensus Estimate by 0.9%.
Operational Update
Peabody’s total sales volume in the quarter was 64.3 million tons, down 0.5% from the prior-year level. Sales volume in 2014 reached 249.8 million tons, lagging last year’s sales of 251.7 million tons by 0.8%.
Operating costs and expenses incurred in the reported quarter declined 5.1% year over year to $1.68 billion.
Revenue per ton, in the U.S., in 2014 decreased 2.8% year over year to $21.03, while revenue per ton in Australia plunged 15.9% to $69.99.
Peabody’s 2014 earnings before interest, tax, depreciation and amortization (“EBITDA”) were $0.8 billion, down 22.3% from $1.04 billion in 2013.
Operating loss incurred in 2014 was $135.1 million compared with a loss of $324.8 million a year ago.
Financial Update
As of Dec 31, 2014, Peabody had $298.0 million in cash and $406.5 million in inventories compared with $444.0 million in cash and $506.7 million in inventories as of Dec 31, 2013.
Long-term debt as of Dec 31, 2014, was $5.96 billion compared with $5.97 billion as of Dec 31, 2013.
Guidance
Peabody expects first-quarter 2015 adjusted EBITDA in the range of $160 million to $200 million and the bottom line in the range of a loss per share of 39 cents to 32 cents.
The guidance takes into consideration lower seaborne thermal coal pricing, expected lower Resource Management contributions and two Australian longwall moves.
For 2015, the company is targeting total sales of 245–265 million tons, including 190–200 million tons from the U.S., 35–37 million tons from Australia and the remainder from Trading and Brokerage activities.
The company projects 2015 capital spending of $180–$200 million.
Upcoming Releases
Arch Coal Inc. (ACI) is slated to release its fourth-quarter 2014 results on Feb 3. The Zacks Consensus Estimate is pegged at a loss of 38 cents.
SunCoke Energy, Inc. (SXC) is slated to release its fourth-quarter 2014 earnings on Jan 29. The Zacks Consensus Estimate is 26 cents.
CONSOL Energy Inc. (CNX) is slated to release its fourth-quarter 2014earnings on Jan 30. The Zacks Consensus Estimate is 20 cents.
Our View
Peabody projects that nearly 225 gigawatts of new coal-fueled generation will be built over the next three years on a global scale, creating demand for 500 million tons of coal.
The World Steel Association forecasts a 2% increase in global steel use in 2015, lower than 2014 levels.
Though Peabody is hit by the softness in coal demand, it will benefit from its exposure to both thermal and metallurgical (met) coal once the demand scenario improves.
During the reported quarter, Peabody entered into a joint venture with the largest coal producer of Australia, Glencore Coal Pty limited (Glencore), to develop mines in Hunter Valley, Australia. Given the rising regulatory pressure in the U.S. to reduce emissions and increasing competition in the global markets, this joint venture will allow Peabody to produce high quality coal at a cheaper cost.
Given the fact that U.S. regulations are tightening on coal-fired generation, the company’s initiatives to expand in Asia-Pacific are encouraging.
Peabody Energy Corp. currently holds a Zacks Rank #4 (Sell).
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