Peabody Energy (BTU) reported first-quarter 2010 earnings of 52 cents per share, higher than the Zacks Consensus Estimate of 41 cents and the year-ago profit of 50 cents. The better-than-expected result was due to improved pricing, coupled with higher volumes from the company’s Australian operations.
Revenue
Peabody’s quarterly sales, at $1.5 billion, increased 4.3% year-over-year, on the back of a 3.9% rise in U.S. revenues per ton. However, sales came marginally lower (by 0.8%) than the Zacks Consensus Estimate, pulled down by lower volumes in the company’s Midwest U.S. mining operations.
Volumes
The company’s total sales volumes in the quarter were 58.3 million tons, down from 59.5 million tons a year ago, primarily attributable to weather-related disruptions in both Australia and the U.S. Planned reductions in U.S. production were partially offset by 40.9% increase in Australian volumes.
Balance Sheet
Peabody’s capital expenditure (excluding acquisitions) in the first quarter was $100.6 million. At the end of the quarter, the company had $1.0 billion in cash and $2.7 billion in long-term debt, with a debt-to-capitalization ratio of approximately 41.0%.
Guidance
Peabody expects its second quarter 2010 EBITDA to be $350 – $425 million and adjusted earnings per share in the 50 – 65 cents range. For full year-2010, the company expects EBITDA of $1.6 – $1.9 billion with adjusted earnings of $2.45 – $3.15 per share. Higher metallurgical and seaborne thermal coal prices are anticipated to benefit Peabody’s results beginning in the second quarter.
For 2010, the company is targeting total sales of 240 – 260 million tons, including trading and brokerage volumes. Australian sales are expected to be 27 – 29 million tons, while U.S. volumes are expected to be 185 – 195 million tons.
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 China’s and India’s demand for metallurgical coal for steelmaking. The seaborne Pacific metallurgical market is expected to increase 25% this year, with thermal demand rising by nearly 10%. Moreover, global steel production is expected to increase more than 10% in 2010, with continued growth from China and India and increased output from traditional steel-producing nations.
Peabody has significant leverage to the improving prices for seaborne metallurgical and thermal coal. The company has 4.5 – 5.0 million tons of metallurgical coal unpriced for second half 2010 deliveries, and almost all of the company’s expected 2011 metallurgical coal production unpriced.
Peabody has 5.0 – 5.5 million tons of Australian thermal coal exports unpriced for the remainder of 2010, and 9 – 10 million tons unpriced for 2011. In the U.S., Peabody has 50 – 60 million tons of coal available for 2011 pricing. However, the company has contracted 2010 volumes early to avoid risks related to recession-suppressed pricing.
Looking ahead to 2012, Peabody retains the largest unpriced position in the industry for with 120 – 130 million tons available for pricing in the U.S., together with 23 – 25 million tons in Australia.
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