St. Louis-based Peabody Energy Corporation (BTU) reported another robust quarter with second-quarter 2011 earnings of $1.11 per share, surging above the Zacks Consensus Estimate of $1.04.
The company’s profits for the quarter rose 61% from last year’s earnings of 69 cents, driven by higher prices for coal.
Revenue
Peabody’s quarterly revenue at $2.01 billion increased 21% year-over-year on the back of robust coal prices across the board and higher Australian volumes. The company’s revenue for the quarter was slightly below the Zacks Consensus Estimate of $2.04 billion.
Australian revenues in the quarter rose 48.2%, driven by higher volumes sold as well as robust prices for both metallurgical and seaborne thermal coal. Peabody’s U.S. operations also performed fairly well, with segment revenue increasing 1.5% from last year.
Operating Results
The second quarter of 2011 saw Peabody’s total sales volumes dip 2.5% from prior year levels to 58.2 million tons. The decline in sales volumes is largely attributable to the decrease in coal shipments in the U.S.
Quarterly coal shipments from the U.S. dipped 5.5% in volumes sold from the Midwestern U.S. mining operations, while sales at the Western U.S. mining operations remained flat compared to last year. Also, volumes sold at the company’s Trading and Brokerage Operations dipped 24% year over year to 4.7 million tons.
However, this was compensated to some extent by a 7.8% rise in coal shipments from the company’s Australian operations.
Though the U.S. coal volumes declined in the quarter, the upside in revenue per ton pushed up the overall revenue contribution from the region. Revenue per ton in the U.S. increased 8.4% year over year for the Midwestern U.S. mining operations and 1.7% year over year for the Western U.S. mining operations. Revenues per ton in Australia rose 38.3% on significantly higher prices for met and seaborne thermal shipments, which in turn drove revenue growth.
Peabody’s earnings before interest, tax, depreciation and amortization (EBITDA) in the second quarter were $579.5 million, recording a 32% rise from $440.4 million in second quarter 2010. During the quarter, the company’s U.S. Mining operations contributed $240.6 million (a 13.7% decline) to EBITDA, while Australian operations delivered a 68.6% increase in EBITDA to $376.9 million. Trading and Brokerage contributed $50.4 million to EBITDA.
Total operating profit in the quarter increased 41% to $458.4 million from $324.4 million in the year-ago quarter.
Financials
As of June 30, 2011, Peabody had $1.18 billion in cash and $75 million in short term investments. Long term debt at the end of the second quarter was $2.47 billion.
Operating profits recorded in the quarter helped operating cash flows as of June 30, 2011 rise 35% to $395.0 million.
Guidance
Peabody expects its third quarter results to benefit from increased demand for Australian metallurgical and thermal coal and near record-high prices. Along with the increased Pacific Rim demand, the company expects seaborne demand to surge further, driven by rising needs in the Atlantic market where coal is required to backfill for declining nuclear use in Europe.
Peabody expects third quarter 2011 EBITDA to come in the range of $575 – $675 million and adjusted earnings per share of $1.05 to $1.25. The company also raised its full-year 2011 EBITDA target to a $2.3 – $2.5 billion range and adjusted earnings per share to the range of $4.20 – $4.60.
However, Peabody retained its full-year 2011 sales target of 245 – 265 million tons, including 28 to 30 million tons from Australia, 195 to 205 million tons from the United States and the remainder from Trading and Brokerage activities.
We note that Peabody continues to advance multiple organic growth projects in Australia and the United States to increase capacity and further access the global coal markets. The company continues to anticipate full-year capital expenditures of $900 – $950 million, with the majority targeted at growth and expansion projects.
Our Take
Looking ahead, the prospects for Peabody remain strong given the upsurge in demand for Australian coal, which continues to keep prices high. This growth in demand continues to be tied to the increased imports into the Chinese and Indian markets. Furthermore, coal companies like Peabody remain positioned to benefit from the rise in coal demand from European countries due to the nuclear cutbacks and higher gas prices.
Peabody’s closest peer Arch Coal Inc. (ACI) is expected release its first quarter results on July 29, 2011. Looking ahead, Arch Coal expects to sustain its strong first quarter performance for the remaining three quarters of fiscal 2011. The Zacks Consensus Estimate for the second quarter is 62 cents per share.
Peabody Energy currently retains a Zacks #3 Rank (short-term Hold rating). We maintain our long-term Neutral rating on the stock.
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