Tuesday, January 25, 2011

Peabody Energy Corp. (NYSE: BTU): Q4 Earnings Preview 2010

Peabody Energy Corp. (NYSE: BTU) the largest US coal producer, is scheduled to release its fourth-quarter earnings before the opening bell on Tuesday, January 25, 2011. Analysts, on average, expect the company to report earnings of 71 cents per share on revenue of $1.80 billion. In the year ago period, the company reported earnings of 43 cents per share on revenue of $1.55 billion.

Peabody Energy Corporation, through its subsidiaries, engages in the exploration, mining, and production of coal worldwide. Peabody serves customers across six continents and has trading and business offices in Indonesia, Singapore, China, Australia, the United Kingdom, Venezuela and the United States. With 2009 sales of 244 million tons and $6 billion in revenues, Peabody fuels 10% of U.S. power and 2% of worldwide electricity.  Peabody owns interests in 28 coal operations located in the U.S. and Australia.

In the preceding third quarter, the St. Louis, Missouri-based company's net income was $224.1 million or $0.83 per share, compared to $106.8 million or $0.40 per share in the year-ago period. Adjusted income from continuing operations more than doubled to $280.3 million or $0.99 per share from $135.5 million or $0.49 per share a year ago. Revenues for the third quarter rose 12% to $1.86 billion from $1.67 billion in the comparable quarter last year. Analysts, on average, expected the company to report earnings of $0.91 per share on revenue of $1.86 billion.

Recently, the company lowered its EBITDA outlook for fiscal 2010, citing record rains and flooding last month in Australia that impacted production and shipments. Notably, Australia accounts for nearly one-third of the company’s net revenue. The company stated that it currently expects fiscal 2010 EBITDA near the midpoint of its target of $1.7 billion to $1.9 billion, announced in July 2010. This is lower than the EBITDA target set in October, in a range of $1.85 billion to $1.9 billion for the year. Peabody stated that December saw the worst rain and flooding in Australia in approximately 50 years. According to the company, the reduced shipments are significantly tightening the seaborne supply-demand balance due to increased metallurgical coal demand worldwide and strong electricity generation in key coal-consuming nations. However, despite supply disruptions, the company reaffirmed its production estimates between 35 million tonnes and 40 million tonnes from Australia by 2015. Besides, Peabody maintained its 2010 sales target of 240 to 260 million tonnes. The company declined to discuss if the floods would affect 2011 results but said Peabody would provide an update during its quarterly conference call. 

Peabody’s future growth is mainly linked to increased demand for energy in Asian economies such as China and India, and the recovery of the steel markets in developed economies such as Japan, South Korea and Taiwan. Early in January, Peabody Energy announced two partnerships with Chinese energy companies to build coal mines near newly planned high-efficiency power plants in China. This deal expands Peabody's reach into the Asia-Pacific region. In recent months, Peabody has enlarged its team of corporate executives and managers charged with overseeing its Asian coal business. With coal use sloping downward in the United States, coal producers are looking toward Southeast Asia, where China and India are burning more coal to power rapidly growing cities. More than 70 percent of China's power generation comes from burning coal, the most carbon-intensive fossil fuel, and that demand is expected to increase on a tonnage basis for at least another decade.

In terms of stock performance, Peabody shares have gained nearly 23 percent since the beginning of the year.

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