The company earned net income of $US29 million for the quarter, compared with $US4 million, and $US75.8 million for the nine month period. Operating profit increased 42% and EBITDA improved 19% for the quarter.
The improvement in the quarter can be largely accounted for by the successful resolution of two contract disputes. Pre-tax results for the current quarter include $US22 million related to a favorable arbitration ruling on pricing under the Navajo station coal supply agreement announced on July 21 and $US15 million related to a mediated settlement regarding the Mohave station coal supply agreement.
"Peabody is managing its way through the difficult market and economic conditions by matching production to demand, taking actions to lower costs, managing risk, and completing important transactions," said Peabody Energy chairman and chief executive officer Irl Engelhardt.
"Our employees dealt with geologic and equipment problems which, along with cost impacts of reduced production levels, impacted quarterly earnings. We see signs of market improvements, albeit at a slower pace than expected due to the soft U.S. economy."
Production volumes were stable with the prior-year period, as the output from four new operations was offset by the idling of the Big Mountain and Colony Bay mines in Appalachia and cutbacks in planned production in the Powder River Basin. Peabody has trimmed 19 million tons from planned 2002 production to match demand.
Operating profit increased to $US51.3 million for the quarter and $US161.5 million through nine months, while EBITDA increased to $US110.4 million and $US337.9 million, respectively. Higher pricing and the resolution of the two contract disputes more than offset the impacts of production cutbacks, temporary geologic issues in two Eastern underground mines and unplanned equipment repairs in the Powder River Basin and Southwest. These three operating factors reduced EBITDA by $US39 million.
Capital expenditures, excluding acquisition of reserves and operations, totaled $US56 million during the third quarter and $US146 million through nine months. The company is targeting full-year 2002 capital expenditures in the $180 million to $200 million range.
"We expect coal demand for electricity generation to improve by 1% to 1.5% in 2002, after a very slow start," said Engelhardt. "Customer stockpiles are being reduced through increased generation using coal and lower industry production, particularly in the East. We expect stockpile reduction activities to be completed in the fourth quarter or early next year, and anticipate 2003 growth in coal demand of approximately 2%."
Peabody has committed and priced all of its anticipated 2002 production of 180 million tons. Approximately 157 million tons of 2003 production is currently committed and priced.
Looking ahead, the company said it was taking a number of measures in the fourth quarter to lower its cost structure. Two mines will be suspended in Southern West Virginia, and certain Powder River Basin mines will continue to operate below capacity. Peabody will close a mine in Western Kentucky and the coal will be temporarily sourced from third parties.
The company undertook a number of growth initiatives in the quarter, including the purchases of the 1.3mt/yr Wilkie Creek mine in Australia, and 25% of Arclar, which owns two mines in Illinois. Peabody also continued its development of new coal-fired generating plants, including 1,500MW Thoroughbred Energy Campus and the 1,500MW Prairie State Energy Campus in Illinois.
