Peabody Energy Corp., the world's biggest private-sector coal company, reports fourth-quarter and full-year results before the market opens Tuesday.
WHAT TO WATCH FOR: Peabody's Australian operations, which produce much of the coal sent to customers in the Asia-Pacific region, was a key revenue driver for the company in the third quarter, when Peabody's profit more than doubled from the previous year. However devastating flooding in Australia shut down mines and disrupted transportation links in the fourth quarter. Late last month, Peabody issued a "force majeure" notice, which protects it from liability for unforeseen events beyond its control.
The Australia floods came at a time of increasing demand for coal as the global economy gains steam, Dahlman Rose & Co. analyst Daniel Scott wrote in a research note earlier this month. He kept his "Buy" rating on a number of coal companies and raised his target prices on their shares. He boosted Peabody's target price to $80 from $66.
"Despite the one-time nature of these events, we believe the recent price moves foreshadow an overall tighter supply-demand picture against the backdrop of a firming international economic picture," Scott wrote.
Like other miners, Peabody has pushed aggressively to broaden production in Australia — home to sizable reserves of metallurgical coal used to make steel.
About half of all electricity in the U.S. is generated by coal-fired power plants, so Peabody stands to benefit from increased energy use. Peabody fuels roughly one-tenth of all U.S. electricity generation and more than 2 percent worldwide.
Analysts will be particularly interested in results from China, where energy consumption has more than doubled in less than a decade, driven by manufacturing and steel production, according to the International Energy Agency.
WHY IT MATTERS: Peabody's earnings are closely watched because the company usually is the first of the sector's big players to report each quarter, giving analysts a snapshot of the industry's health, including its outlook for demand for thermal coal used in electricity generation.
WHAT'S EXPECTED: On average, analysts polled by FactSet expect Peabody to earn 77 cents per share on revenue of $1.79 billion, according to FactSet. For all of 2010, analysts expect earnings of $2.93 per share on revenue of $6.82 billion, up from $1.92 per share on $6.01 billion in sales in 2009.
EARLIER SHOWING: Peabody's third-quarter profit more than doubled from the previous year as it benefited from strong global demand for coal, particularly from China and India. CEO Gregory Boyce said the third-quarter results represented just the beginning of a "super cycle" of increasing demand as Asia leads the rest of the world in an economic recovery.
LAST YEAR'S QUARTER: Peabody earned 43 cents per share on revenue of $1.55 billion.