Peabody's Reports Higher Profit, Tops Forecasts
Coal-mining Peabody Energyreported fourth-quarter profits that easily topped Wall Street expectations on surging contract prices in Australia. Company shares surged 12 percent.
Acknowledging continued softening in U.S. coal demand, however, the St. Louis-based company said it would stick with the 2009 production outlook it lowered recently — 190 to 195 million tons in the U.S., 22 to 24 million tons in Australia.
Peabody, among of the world's biggest coal producers, said it would wait until later this year to issue earnings guidance, citing "global economic uncertainty."
Peabody reported net income of $293.3 million, or $1.10 per share, in the latest quarter, up from $35.8 million, or 13 cents per share, a year earlier, when the company took a charge from spinning off Patriot Coal.
Revenue in the most recent period rose to $1.9 billion from 1.2 billion.
Analysts surveyed by Thomson Reuters expected, on average, earnings per share of 74 cents and revenue of $1.71 billion.
Peabody's shares jumped $2.89, or 12 percent, to $26.73 in early trading Tuesday.
"Amid challenging near-term markets, we enter 2009 with a sound financial position and will pursue opportunities to further strengthen the portfolio," said Greg Boyce, Peabody's chairman and chief executive.
For all of last year, Peabody said it earned $953.5 million, or $3.51 per share, on sales of 255.5 million tons of coal. That compares with 264.3 million, or 98 cents per share, on 236.1 million tons in 2007. In addition to charges from the Patriot spinoff, Peabody said its 2007 results were hurt by foreign-exchange rates, higher debt expenses and lower prices for metallurgical coal, which is used in steel production.
Revenue for 2008 was $6.6 billion, up from $4.5 billion the previous year.
"Peabody exceeded expectations with their sales and operating performance, proving to be a tough act to follow for its peers over the coming weeks," said Daniel Scott, an analyst with Dahlman Rose & Co.
Shares of major coal mining companies — in many cases the darlings of the energy sector in recent years — have been under pressure lately. Some of the biggest customers are steel companies, which have been slashing production amid a global economic downturn.
Peabody said its U.S. production essentially is sold out for 2009, with roughly three-quarters of its domestic production already priced for 2010, leaving 45 million to 55 million tons of its U.S. production yet to be contracted for that year.
In Australia, Peabody said it has 5 million to 6 million tons of seaborne thermal coal still unpriced for the last nine months of this year and 10 million to 11 million tons for 2010. The company says it has 4 million to 5 million tons of Australian-based metallurgical coal available to be priced for 2009's last three quarters, and 7 to 8 million tons still unpriced for 2010.
While many analysts have cut price targets for Peabody and other big players in the sector, observers expect the massive stimulus package planned by the Obama administration to increase business by bolstering spending on infrastructure projects — repairing roads and bridges, and advancing energy efficient programs.
Peabody said global coal demand rose 2 percent last year to meet electricity demand, largely in emerging economies overseas such as China and India. The miner noted that this year's coal demand will be impacted by the global pullback in steelmaking and moderate softness in global electricity generation, offset by growth from new construction of power plants and increased market share for coal.
"We believe that inventories will rebalance, steel demand will recover, new coal plants will come on line and existing plants will run at higher utilization, while difficult geology and lack of capital access will deplete supply and limit infrastructure development," Boyce said.