Despite losses, Peabody optimistic in Q1 results

GLOBAL producer Peabody Energy was able to beat analyst expectations for its first-quarter performance, though the slow pace of demand uptick, especially for thermal coal, was not enough to bring the St Louis-based company back into the black across the board.
Despite losses, Peabody optimistic in Q1 results Despite losses, Peabody optimistic in Q1 results Despite losses, Peabody optimistic in Q1 results Despite losses, Peabody optimistic in Q1 results Despite losses, Peabody optimistic in Q1 results

Peabody Energy chairman and CEO Gregory Boyce.

Donna Schmidt

For the period ended March 31, Peabody reported revenues of $1.75 billion, a 14% drop from $2.02 billion it tied to weak coal prices in the US and Australia.

US revenues were $976.8 million, down 12% year-on-year, with Peabody attributing the drop to a 6 million ton decline in shipments.

Australian revenues, meanwhile, totaled $738 million versus $854.1 million in the prior year quarter, due primarily to a 32% decline in realized pricing per ton that was offset in part by a 26% rise in shipments.

Australian sales were 8.3Mt, including 3.6Mt metallurgical and 2.7Mt of seaborne thermal coal.

The producer took a loss from continuing operations of $10.3 million in the first period, compared with an income of $183 million in the prior-year quarter.

Lower pre-tax earnings as well as higher depreciation, depletion and amortization expenses all played a role in the swing.

The net loss attributable to Peabody’s common stockholders was $23.4 million, a stark change from its profit of $172.7 million in 2012’s first quarter.

“Peabody's first quarter results reflect the success of strong cost containment programs across the global platform," chairman and chief executive officer Gregory Boyce said.

“We continue to aggressively reduce costs, exercise capital discipline, maximize cash flows and reduce debt.

“Within global markets, US coal demand is rebounding, Chinese and Indian coal imports are rising and additional production rationalization and project delays are taking place.”

Looking at the company’s position against the global market, Boyce noted recent market dynamics had not yet translated into expected seaborne price increases.

“We see another year of import growth from China and India, growing Chinese steel production and new coal generation being built around the globe," he said.

Over the course of the year, Peabody said global seaborne thermal demand should increase 50Mt on about 75 gigawatts of coal generation scheduled to come online.

Also, over the next half-decade, more than 450GW of additional generation should be ready for use, equating to 1.4 billion tonnes of consumption annually.

Regarding Peabody's Australian platform, the producer said most of its second quarter met coal contracts were being settled in line with benchmarks and it was holding fast to its 2013 met coal sales target of 15-16Mt.

“Peabody is settling approximately 30 per cent of its anticipated 2013 thermal coal sales contracts in line with the new annual benchmark price,” the company said.

“Seaborne thermal coal sales are targeted at 11Mt to 12Mt in 2013, with 30 to 35 per cent remaining to be priced later in the year.”

Peabody is targeting total 2013 Australian sales of 33-36Mt.

In the US, Peabody said it was aware of the “strong improvement” in coal demand year-on-year as generators began to switch back from gas to coal, particularly as prices for natural gas begin to spike once again in many areas.

“We now expect that during 2013, coal will recapture the vast majority of its 2012 demand that was lost to natural gas,” Boyce said.

Domestic coal shipments fell 10% in the first quarter, leading to an above-average customer stockpile drawdown.

The producer noted that both Powder River and Illinois basins customer inventories had fallen 20% below prior-year levels on a days-burn basis.

They are on pace to return to normal later this year, officials projected.

In the meantime, Peabody's projected 2013 US production was essentially fully priced, with 2014 sales 55-65% priced based on comparable 2013 production levels.

Looking ahead at its whole-year goals, the producer opted to reduce cost-per-ton targets in the US as well as Australia thanks to what it called “successful” Q1 results.

The company is eyeing a US-dollar cost per ton 2-3% lower than 2012 and Australian costs of approximately $80/t as cost containments and productivity improvements in part serve to mitigate its external cost pressures and a higher-cost metallurgical coal mix.

Peabody maintained the remainder of its outlook, including total sales of 230-250Mt – including US sales of 180-190Mt and Australian sales of 33-36Mt – as well as expected US revenues per ton 5-10% below 2012.