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

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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.

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