St. Louis-based Peabody Energy Corporation (BTU) reported third-quarter 2010 earnings of 99 cents per share, beating the Zacks Consensus Estimate of 91 cents. The company’s profits almost doubled compared to  last year’s earnings of 49 cents, driven by strong global demand for coal, particularly from China and India.

Revenue

Peabody’s quarterly revenue, at $1.86 billion, increased 11% year-over-year on the back of a 36% rise in Australian revenues per ton. The company’s revenue for the quarter was almost in line with the Zacks Consensus Estimate of $1.857 billion.

The company’s U.S. operations also performed fairly well, increasing slightly from the previous quarter but declining compared with last year. However, revenues were marginally pulled back by lower volumes in the company’s Midwest U.S. mining operations.

Volumes

The company’s total sales volumes in the quarter were 64 million tons, slightly ahead of prior-year levels, primarily due to improved shipments in Australia and higher Trading and Brokerage activity. By region, sales volumes were 41.9 million tons (down 0.2% year over year) from Western U.S. mining operations, 7.2 million tons (down 8.9%) from Midwestern U.S. mining operations and 7.4 million tons (up 13.8%) from Australian operations.

Balance Sheet

Peabody’s capital expenditure (excluding acquisitions) in the third quarter was $125.8 million. At the end of the quarter, the company had $1.4 billion in cash and $2.7 billion in long-term debt.

Guidance

For full-year 2010, Peabody raised the lower-end of its expected EBITDA target to $1.85 – $1.9 billion. The company also raised the midpoint of its adjusted earnings for 2010, with guidance range now at $2.95 – $3.15 per share.

Global seaborne metallurgical demand for 2010 is expected to reach 270 million tons, a 35% increase over 2009. Seaborne thermal coal demand in the Pacific is expected to rise more than 15%, exceeding the 500 million ton mark for the first time. 

For 2010, the company is targeting total sales of 240 – 260 million tons, including trading and brokerage volumes.

Outlook

The company’s growth going forward is expected to be driven by continued strength in the U.S. and Australia (Pacific markets), led by demand for metallurgical coal for steelmaking in China and India. Other Asian nations such as, Japan are also expected to continue to rebound sharply from 2009 levels.

Going forward, Peabody anticipates China’s coal imports to be roughly 135 – 140 million tons for 2010, with India importing 100 million tons.

Peabody has significant leverage to the improving prices for seaborne metallurgical and thermal coal. For the fourth quarter the company has hedged its metallurgical and thermal coal production in Australia at rates consistent with industry settlements.

Also, the company has about 9 to 10 million tons of Australian metallurgical coal unpriced for 2010, and 11 to 12 million tons available for pricing in 2012. The company has roughly 8.5 to 9.5 million tons of Australian thermal export coal available for pricing in 2011, growing to 12 to 13 million tons in 2012.

Furthermore, Peabody continues to advance its development of metallurgical and thermal coal projects with the goal of raising its Australian production platform to 35 – 40 million tons per year by 2014.

 
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