Now that Peabody Energy (NYSE:BTU) has turned in its quarterly results, I figure it's high time we checked in on the coal king. The world's largest private-sector coal producer reported some disappointing earnings per share numbers, but the EPS metric isn't necessarily the most useful, given Peabody's capital structure and its recent major acquisition of Australia's Excel Coal.

The cash flows tell a rather different story. Whereas reported EPS dropped more than 30% from last year, operating cash flow came in higher than in any quarter since Q4 2005. Management also reaffirmed its EPS guidance of $2.10 to $2.75 for the year.

If you're worried that I'm being dismissive of Peabody's significant debt load, a look at the firm's interest coverage ratio should be reassuring. Sure enough, the firm's EBITDA covered interest payments during the quarter four and a half times over.

Enough with the numbers: Let's get to the good stuff. First of all, global demand is showing no signs of abating. India has tripled the U.S. Energy Information Administration's previous estimate of that nation's long-term coal demand. In a few short years, China has gone from being a significant exporter to suddenly being a net importer of coal. With that supply glut burned off, India and other fast-growing Asian nations need to turn elsewhere to keep the lights on.

Demurrage at Newcastle
Enter Australia. Scratch that -- Australia's been the world's leading coal exporter for years now. Re-enter Australia! The Aussie port of Newcastle has reportedly experienced insane queues of ships waiting to haul coal off to Pacific destinations. These constraints are reflected in the soaring Baltic Cape Size Index, which is reported daily by DryShips (NASDAQ:DRYS). The ships are paid handsomely to wait, which is bad news in the short term for the coal exporters. Peabody, for one, has factored persistent demurrage costs into its guidance for the full fiscal year.

Japan, Taiwan, and Korea account for 85% of Newcastle's export tonnage, according to PWCS, the top firm loading the coal onto ships there. This completely jives with our assessment of the China situation. Australian coal prices should remain very robust, given the stretched supply environment. Peabody's strategic expansion into that market is looking extremely shrewd.

The East Coast shuffle
Peabody's quarterly numbers were not the big story on Thursday. The company simultaneously announced that it has hired Morgan Stanley (NYSE:MS) to explore a sale or spinoff of its Eastern coal assets in Central and Northern Appalachia. The company said in its release "that mining in Appalachia reflects geologic and business conditions that are sufficiently different from Peabody's other operations." I think a more straightforward way to look at it is this: Peabody is going where the growth is. I can't argue with that approach.

Another interesting development in Peabody's strategy is its ramp-up of the coal trading/brokerage and resource management arms. These operations have really taken off in the past two years, and I like the diversified revenue streams that they provide across fluctuating market conditions. Likely encouraged by these units' contribution to EBITDA in recent quarters, the company announced that it's opening new trading desks in Europe and Beijing.

Peabody is nicely geared toward growth abroad and a potential niche within commodities trading, not to mention the future potential offered by Sasol's (NYSE:SSL) coal-to-liquids technology or Headwaters' (NYSE:HW) clean coal-oriented nanotechnology. Letting go of the Eastern assets would provide the means to either pay down debt or support further strategic expansions, two laudable pursuits. If you're looking for some coal exposure in your portfolio, you could do a lot worse than going with this dominant player.

Coal, continued:

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Fool contributor Toby Shute recommends the book Coal, by Barbara Freese, for a thoughtful look at the resource's troubling social history. He doesn't own shares in any company mentioned. The Motley Fool has a disclosure policy.