Peabody Energy Earnings Up on Sharp Cost Reductions

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Peabody Energy Corp. (BTU) reported second-quarter 2013 results before markets opened this morning. The coal miner posted adjusted diluted earnings per share (EPS) of $0.33 on revenues of $1.73 billion. In the same period a year ago, Peabody reported EPS of $0.51 and revenues of $2 billion. The consensus estimates called for a net loss of $0.05 per share on revenues of $1.82 billion.

Peabody noted a decline in Australian pricing in the quarter, but a rise in shipments. U.S. revenues were down 4.4%, but the company was able to cut U.S. costs by 6% and Australian costs by 20% to mitigate the decline in U.S. shipments and the falling prices for Australian coal.

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The company projects U.S. demand for thermal coal will grow by 50 million to 70 million tons as the fuel has regained “significant market share” from natural gas. Demand was up 11% in the first half of the year, while natural gas-powered electricity generation fell 15%. Coal shipments have fallen by 5% in the first half of the year, but inventory draw-downs will soon have to be replenished. And in the longer term, Peabody believes Powder River Basin and Illinois Basin coal consumption will continue to rise as more fuel switching occurs and coal-fired plants increase generation.

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The company’s CEO said:

Our progress in reducing capital and moving our operations down the cost curve highlights the actions we are taking to succeed in all market conditions. … While seaborne coal supplies remain at elevated levels, the world's largest producers -- China and the United States -- have reduced production, and we expect additional cutbacks in the second half of the year.

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Peabody now forecasts third-quarter earnings in a range from an EPS loss of $0.16 to a profit of $0.09. Full-year coal sales are now expected to total 230 million to 250 million tons, with 180 million to 190 million tons for U.S. consumption. U.S. revenues per ton are expected to be 5% to 10% lower than in 2012, and depreciation, depletion and amortization levels are expected to be about 10% higher than a year ago.

Shares are up about 5% in premarket trading this morning, at $17.14 in a 52-week range of $14.34 to $29.84. Prior to today’s release, Thomson/Reuters had a consensus price target of around $24.80 on the company’s shares.

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