Peabody Energy Corporation (BTU) reported first-quarter 2012 earnings of 67 cents per share compared with 72 cents in the year-ago quarter. The decline in earnings was due to higher interest expense related to its Macarthur Coal acquisition and an increase in depreciation, depletion and amortization expenses. The quarterly earnings significantly beat the Zacks Consensus Estimate of 56 cents.
Revenue
Peabody’s quarterly revenue, at $2.04 billion, increased 17% year over year from $1.7 billion in the year-ago period. This was driven by increased realized pricing for metallurgical and thermal coal from Australian operations and 5% growth in US revenue related to higher realized prices in the Western and Midwestern regions. The company’s revenue for the quarter fell short of the Zacks Consensus Estimate of $2.12 billion.
Operational Update
Peabody’s total sales volume in the quarter was 61.7 million tons, slightly ahead of the prior-year level of 61.2 million tons. The marginal rise was attributable to an increase in sales volume at the Australian Mining Operations and Trading & Brokerage Operations, partially offset by a sales volume decline at Midwestern and Western U.S. Mining Operations.
Peabody’s earnings before interest, tax, depreciation and amortization (EBITDA) in first-quarter 2012 was $512.6 million, up 18% year over year from $435.3 million in the year-ago quarter. This was driven by an approximately 41% increase in EBITDA at the Australian Mining Operations, related to the Macarthur Coal acquisition, weather-related effects on metallurgical coal sales, increase in volumes and per ton revenues.
U.S. Mining EBITDA also played a significant role, recording a 10% increase associated with higher per ton margins in the Midwest and West mining operations and higher revenues.
The company’s operating profit in the reported quarter was $350.2 million, up 11% year over year from $314.3 million a year ago.
Financial Update
As of March 31, 2012, Peabody had $952.4 million in cash and $514.9 million in inventories versus $799.1 million in cash and $446.3 million in inventories as of December 31, 2011.
Long-term debt of the company, as of March 31, 2012, was $6.54 billion versus $6.56 billion as of December 31, 2011.
Peabody’s capital expenditure in the first quarter was $238.6 million compared with $102.5 million reported in the year-ago quarter.
Guidance
Peabody expects second quarter 2012 EBITDA to come in the range of $450 million – $550 million and adjusted earnings per share in the band of 40 cents – 65 cents. However, the company cautioned that second quarter results will likely be impacted by a decline in U.S. shipments and lesser realized thermal and metallurgical coal pricing.
For full-year 2012, the company is targeting total sales of 235 – 255 million tons, including 33 – 36 million tons from Australia, 185 – 195 million tons from the U.S. and the remainder from Trading and Brokerage activities.
Peabody continues to advance multiple organic growth projects in Australia and the U.S. The company expects capital expenditure in the range of $1.1 billion – $1.3 billion in 2012. The company’s 2012 capital investment program includes continued improvement of the low-vol PCI Codrilla mine, steady development activities and equipment deployment at Moorvale and Coppabella mines, conversion of Millennium and Wilpinjong mines in Australia from contract mining to owner operations, and expansions at Burton, Metropolitan and Millennium metallurgical coal mines.
Peer Comparison
Arch Coal, Inc. (ACI), which competes with Peabody Energy Corporation, is expected to report first quarter earnings before the market opens on May 1, 2012. The Zacks Consensus Estimates for its first quarter and fiscal 2012 earnings are currently pegged at 19 cents and 67 cents, respectively.
Our View
Though the company failed to meet our revenue expectations in the reported quarter, it managed to beat the earnings estimates comprehensively, with significant contributions from the Australian and U.S. mining operations.
We view that the present coal market is improving at a faster pace with higher steel production. At the same time, the demand for coal in emerging markets will act as a positive catalyst for the company’s future growth, with increase in thermal power generation in India and China.
But, we are concerned about the company’s interest burden due to the Macarthur Coal acquisition and higher depreciation expenses. The company also faces stiff competition from natural gas producers for power generation. It also runs geo-political risks as a significant portion of sales comes from its international operations. We currently retain a Zacks #4 Rank on Peabody Energy Corporation, which translates into a short-term Sell recommendation.
St. Louis, Missouri-based Peabody Energy Corporation is a private sector coal mining company. The company has interests in 30 coal operations located in the United States and Australia.
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