St. Louis-based Peabody Energy Corporation (BTU) reported first-quarter 2011 earnings of 67 cents per share, beating the Zacks Consensus Estimate of 60 cents. The company’s profits rose 29% from last year’s earnings of 52 cents driven by higher global prices and demand for coal.

Revenue

Peabody’s quarterly revenue, at $1.744 billion, increased 15% year-over-year on the back of robust Australian coal prices and U.S. volumes. The company’s revenue for the quarter was almost in line with the Zacks Consensus Estimate of $1.746 billion.

Australian revenues in the quarter rose 30% driven by higher prices for both metallurgical and seaborne thermal coal. Peabody’s U.S. operations also performed fairly well, with segment revenue increasing 10.2% from last year.

Operating Results

First quarter of 2011 saw Peabody’s total sales volumes rise to 61.2 million tons, an increase of nearly 5% from prior year levels. The increase in sales volumes is largely attributed to the increased coal shipments in the U.S.

Quarterly coal shipments from the U.S. totaled 51.4 million tons, a 9% rise since last year, driven by higher demand and continued ramp-up of the Bear Run Mine in the Midwest. U.S. sales comprised 43.8 million tons (up 9.5% year over year) from Western U.S. mining operations and 7.6 million tons (up 7%) from Midwestern U.S. mining operations.

However, the first quarter witnessed a 9.7% dip in Australian sales compared to last year. The company recorded total sales of 5.6 million tons in Australia. Also, volumes sold at the company’s Trading and Brokerage Operations dipped 16% year over year to 4.2 million tons.

Nevertheless, revenues per ton in Australia rose 43% on significantly higher prices for met and seaborne thermal shipments, which in turn drove revenue growth. Revenue per ton, in the U.S., increased 10.6% year over year for the Midwestern U.S. mining operations and declined 2.9% year over year for the Western U.S. mining operations.

Peabody’s earnings before interest, tax, depreciation and amortization (EBITDA) in the first quarter were $416.2 million, recording a 17% rise from $357.2 million in first quarter 2010. During the quarter, the company’s U.S. Mining operations contributed $289.3 million (a 3% rise) to EBITDA, while Australian operations delivered a 55% increase in EBITDA to $190.5 million. Trading and Brokerage contributed $26.8 million in EBITDA.

Total operating profit in the quarter increased 22% to $294.3 million from $242.2 million in the year-ago quarter.

Financials

As of March 31, 2011, Peabody had $1.27 billion in cash and $100 million in short term investments. Long term debt at the end of the first quarter was $2.48 billion.

Operating profits recorded in the quarter helped operating cash flows as of March 31, 2011, to rise 28% to $220.6 million. Peabody’s capital expenditure (excluding acquisitions) in the first quarter was $116.1 million compared to $100.6 million in the year-ago period.

Guidance

Peabody expects its second quarter results to benefit from increased Australian volumes and higher metallurgical and thermal coal prices. However, the company expects the second quarter results to be impacted by the residual effects of the Australian rains, scheduled longwall moves in Australia and reduced production at the company’s Twentymile Mine in Colorado.

Peabody expects second quarter 2011 EBITDA to come in the range of $525 – $625 million and adjusted earnings per share of $0.85 to $1.10.

For full-year 2011, Peabody targets EBITDA in the $2.1 – $2.5 billion range and adjusted earnings per share in the range of $3.50 – $4.50. The company 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. The company continues to anticipate full-year capital expenditures of $900 – $950 million, with the majority targeted at growth and expansion projects. 

In Australia, the company remains on track to expand sales to 35 to 40 million tons by 2014 to 2015, reaching 12 to 15 million tons of metallurgical coal capacity and 15 to 17 million tons of export thermal capacity. 

Our Take

We expect Peabody’s growth to be driven by continued strength in its U.S. and Australian operations. During the first quarter, Peabody made significant progress on a number of Australian mine expansions, entered into Chinese development agreements, expanded Indonesian supply sources, and announced a major throughput agreement for a proposed Western U.S. export facility. This strengthens its outlook for the future along with rising met and thermal coal prices.

Peabody’s closest peer Arch Coal Inc. (ACI) is expected release its first quarter results on April 26, 2011. The company expects to deliver slightly disappointing results in the first quarter of 2011 impacted by the idling of the longwall at Mountain Laurel, as announced on January 11, 2011.

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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