Will Record Coal Use Fuel Profits for Coal Producers in 2014?

Coal producers are having a tough time making money. Will a strong outlook for coal use in 2014 reverse that trend?

Feb 1, 2014 at 10:06AM

Coal

Photo credit:Flickr/Alison Christine

Peabody Energy Corporation (NYSE:BTU) didn't make any money last quarter. Slumping coal prices caused the company to break even on an adjusted basis. Full-year profits were less than half of what the company saw in 2012. While the company produced positive cash flow and was able to slice a few hundred million dollars off its debt, 2013 won't go down as a great year for the coal producer.

Demand remains robust
This is despite the fact that the world is using more coal than ever before. Developing markets like China are importing record amounts of coal. Last month alone the country imported a monthly record of 35 million tonnes of coal and set an annual record with 320 million tonnes imported.

China is not alone. India increased thermal coal imports by 23% last year. Japan increased its coal consumption by 10% as new coal-fired generation increased its demand. Even Germany's coal usage grew in 2013, using more than in any year since 1990. It's a trend that Peabody Energy doesn't see ending.

In fact, Peabody Energy CEO Gregory Boyce sees "continued record coal use in 2014." He sees developing nations like China and India continuing to increase coal imports while "developed nations capitalize on coal's cost and reliability advantages over natural gas and renewables." The problem is that even with record demand, coal prices aren't expected to budge all that much, which is why the company doesn't expect to see robust profits in 2014.

Muted expectations
The company is guiding for earnings in a range of $0.14 a share to a loss of $0.10 per share in the first quarter. Overall, the company is guiding for U.S. coal revenue to be 5%-8% below 2013. So, even after it cuts costs by 1%-3% below last year's levels, we're not talking about an exciting formula for profit growth.

Peabody Energy's lackluster fourth-quarter report and muted outlook don't exactly bode well for fellow coal producers like Arch Coal (NYSE:ACI). Analysts expect Arch Coal to lose $0.37 per share when it reports earnings on Tuesday. Not only that but analysts see the company losing $1.27 over the next year as surging coal demand isn't expected to help pricing.

This is one reason why we're seeing other coal producers like CONSOL Energy (NYSE:CNX) slowly exit the coal industry. The company recently sold off some of its legacy coal mines and is instead investing its money to grow its natural-gas production. Over the next few years, CONSOL Energy only plans to invest to maintain its coal production while it sees its gas production rising by an average of 30% annually for the next few years.

Investor takeaway
Despite surging coal demand outside the U.S. it's still tough to be a coal producer these days. While these companies are cutting costs in order to maintain profitability, there doesn't appear to be a catalyst on the horizon that will catapult coal prices, and therefore producer profits, higher. Given the current outlook, it is tough to see surging producer profits and stock prices for coal companies in 2014.

One stock that is poised to surge in 2014

There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


Matt DiLallo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers