What You Need To Know About Peabody Energy Inc. Now

At the end of the second quarter, Peabody Energy Inc.  (NYSE: BTU  ) was expecting earnings to come in between a loss of $0.16 a share and a profit of $0.09. Earnings from continuing operations came in at $0.06 a share, toward the high-end of the company's range. Cost-cutting and Australian volume gains were the highlights of the quarter.

First let's look at Peabody Energy's results, then understand what they imply for fellow coal companies Alpha Natural Resources,  (NYSE: ANR  )  and Arch Coal  (NYSE: ACI  ) .

Not as good as it looks
Although Peabody Energy earned $0.06 a share from continuing operations, it actually lost a dime a share on a GAAP basis. It earned $0.33 a share on a GAAP basis in the second quarter last year. So the results aren't as good as they may first appear. GAAP earnings in the third quarter of last year were $0.16, with earnings from continuing operations of $0.46.

Clearly, year over year, Peabody Energy is still showing signs of suffering through a difficult coal market. That's not unique in the coal industry, with companies like metallurgical coal focused Walter Energy (NYSE: WLT  ) cutting its dividend after reworking its debt covenants earlier this year. That company has lost money for four consecutive quarters and should do so again when it reports third quarter earnings later this month. So, on a relative basis, Peabody, despite its current struggles, is doing pretty well.

Rio called it
Australia was a bright spot for Peabody Energy. Rio Tinto (NYSE: RIO  ) telegraphed continued strength in the Australian market earlier this month when it released its third quarter operational review. This diversified miner noted production growth of 15% at its Aussie thermal coal mines and 5% growth at its semi-soft coking business. A 10% decline in hard coking coal was largely attributed to a wall failure, which Rio is working to correct.

So it isn't surprising that Peabody's coal volume out of the land down under increased about 5% on a year-over-year basis in the third quarter and is up about 10% year to date. While that's the good news, the average price per ton in the second quarter fell from over $101 in 2012 to just under $88—an over 10% drop.

That, however, was better than the volume and price declines experienced in the U.S. market. That said, the U.S. price decline wasn't nearly as material, with average sales prices falling a little over 5%. Peabody Energy's U.S. operations, where coal volumes fell about 3%, remain the bedrock of its business.

Saving money
The other area where Peabody was able to show some success was in its cost-cutting efforts. It was able to bring costs down about 3% year over year domestically and 8% in Australia. Clearly, however, that's not enough to overcome the weak pricing environment, even with the slight increase in Aussie volumes.

These trends portent badly for U.S. based Alpha Natural Resources Inc. (NYSE: ANR  ) and Arch Coal  (NYSE: ACI  ) . Both of these industry giants have been having a hard time competing in the export market with Australian coal. And that's on top of a relatively weak U.S. coal market. Without a foothold in Australia, the only thing this pair can do is cut costs to the bone. Look for both to post weak results when they report earnings while trumpeting their cost-savings efforts.

A brighter picture
Peabody is painting a brighter picture for the fourth quarter, providing guidance of $0.27 to $0.45 a share. However, that excludes the impact of its recent agreement with Patriot Coal, which will likely push GAAP earnings into the red despite the fact that the agreement is an overall positive for the company.

That said, management highlighted a couple of positive industrywide trends, like utilities continuing to burn down coal inventories as coal regains share from natural gas. These are the real signs of brighter days ahead, suggesting that 2014 will be a much better year for Peabody and the entire coal industry.

Profit from the world's most valuable natural resource
Interested in natural resources? Then you owe it to yourself to discover the most precious resource in the history of the world. It's not gold. Or even oil. But it's more valuable than both of them. Combined. And here's the crazy part: one emerging company already has the market cornered... and stands to make in-the-know investors boatloads of cash. We reveal all in our special 100% FREE report The 21st Century's Most Precious Natural Resource. Just click here for instant access!


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2687977, ~/Articles/ArticleHandler.aspx, 7/24/2014 7:44:42 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 17,083.80 -2.83 -0.02%
S&P 500 1,987.98 0.97 0.05%
NASD 4,472.11 -1.59 -0.04%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

7/24/2014 4:05 PM
ACI $2.91 Up +0.04 +1.39%
Arch Coal, Inc. CAPS Rating: ***
ANR $3.30 Up +0.05 +1.54%
Alpha Natural Reso… CAPS Rating: **
BTU $15.15 Up +0.18 +1.20%
Peabody Energy Cor… CAPS Rating: ***
RIO $58.42 Up +0.46 +0.79%
Rio Tinto plc (ADR… CAPS Rating: ****
WLT $5.94 Up +0.28 +4.95%
Walter Industries,… CAPS Rating: ***

Advertisement