What happened
Shares of Peabody Energy (BTU -0.79%) had surged more than 16% by 10:30 p.m. ET on Thursday. The main factor driving the coal mining stock's rally was its fourth-quarter earnings report.
So what
Peabody Energy reported strong fourth-quarter results. The coal mining company generated more than $1.26 billion of revenue, a whopping 72% year-over-year increase. It also produced $426.6 million of free cash flow during the quarter. The company benefited from significant price improvements in seaborne met coal (used to make steel) and thermal coal (sold to electric utilities to produce power).
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The company used $200 million of its excess cash to repay debt during the quarter. That brought its 2021 debt repayments to $420 million, more than 26% of its debt outstanding at the start of the year. Peabody ended the year with $954.3 million in cash and equivalents, a $367.3 million increase from the third quarter, even with those debt repayments.
Peabody Energy expects the strong market conditions for coal to continue. The company anticipates its U.S. thermal volumes to be higher than last year, driven by customer demand. Meanwhile, it sees its thermal export volumes consistent with the previous year while export volumes of met coal should increase substantially thanks to recent mine expansions.
These strong market conditions enabled the company to lock in significant forward sales commitments and add incremental production capacity to meet the demand for the coal it produces.
Now what
Peabody Energy is benefiting from strong demand for coal. Utilities need more thermal coal to provide baseload power to the grid as demand for electricity grows. Meanwhile, steel producers require more met coal to make more steel due to increased investments in infrastructure. These catalysts could continue driving Peabody's stock in the near term.
However, while demand for coal is strong right now, the future remains uncertain due to its contribution to climate change. Utilities are rapidly shifting to cleaner alternatives like natural gas and renewable energy, while steelmakers are looking to reduce their carbon emissions. That could hamper Peabody Energy's ability to grow value for its investors over the long term.
