Peabody lifts earnings

THE third quarter was a successful one for Peabody Energy which announced earnings were up 48% to US$154 million while earnings for the first nine months of 2004 also jumped 32% to US$395 million. The results were helped by contributions from the company’s acquisitions earlier in the year.
Peabody lifts earnings Peabody lifts earnings Peabody lifts earnings Peabody lifts earnings Peabody lifts earnings

Twentymile longwall mine in Colorado.

Staff Reporter

"Solid performance and strong markets result in a continuation of our earnings improvements and yet another increase in our targets," Peabody chief Irl Engelhardt said.

"Looking ahead, we see the robust coal markets continuing, as economies grow throughout the world and competing fuels experience tight supplies and high prices."

Revenue contributions from the Twentymile Mine in Colorado and metallurgical operations in Australia totaled $119.3 million for the quarter and $209.7 million since their purchase on April 15.

"Peabody's operations are responding well to strong demand, and are continuing their record of reliable customer service," executive vice president and chief financial officer Richard Navarre said.

"Peabody is well-positioned to serve the highest growth markets in the world with its number-one position in four of five U.S. regions and 12 to 14 million tons of metallurgical coal capacity from the United States and Australia."

U.S. mining operations delivered a record performance, driven by strong pricing, high capacity utilization and good performance. Gross margin from these operations increased to $168.8 million for the third quarter and $480.0 million through nine months.

The company experienced transportation difficulties during the quarter related to Australian port and rail congestion as well as U.S. rail and seaborne shipment delays due to several hurricanes in the Eastern United States.

Peabody said geologic and equipment issues at the North Goonyella longwall mine in Australia had continued during the quarter. A new Australian management team has been put into place, and a new surface operation nearby is ramping up its output to improve the cost structure and reliability.

The combined effects of these issues reduced EBITDA by approximately $16 million in the third quarter and $27 million through nine months.

The company also experienced geologic issues at an underground operation in Kentucky, but its impacts were offset by $9.5 million in insurance recoveries.

Margins across the group rose with an 18% quarterly improvement in Eastern U.S. per-ton margins reflecting increases in metallurgical coal volumes and prices. The 9% improvement in Western U.S. unit margins was led by increased volumes and pricing in the Powder River Basin and Southwest, and strong contributions from the Twentymile Mine in Colorado.

Margins rose 42% in Australia due to the contributions from newly acquired metallurgical coal mines versus the prior year, which reflected only thermal coal results.

Multi-year coal supply agreements totaling 27 million tons were signed this quarter which raised the total tons committed under such agreements for the first nine months to 178 million tons. The new contracting season for metallurgical coal is under way, and Peabody is negotiating multi-year agreements for its operations.

On the industry’s outlook Peabody echoed positive sentiment with customer inventories at their lowest seasonal levels in more than five years.

“Peabody expects that the high costs and scarce supplies of oil and natural gas are likely to remain for the foreseeable future," the company said.

"Significant improvements in oil and gas infrastructure are unlikely for a minimum of several years, due to the declining output of existing wells and the long lead times required for development. These factors all bode well for coal industry fundamentals.”

The company has targeted 2004 sales volume of 225 to 230 million tons, with production of approximately 200 million tons. The 2004 production is essentially all committed.

Peabody has raised its full-year 2004 earnings targets to $2.55 to $2.85 per share, and is targeting 2004 EBITDA of $545 to $565 million, a 33% to 38% improvement over 2003.