Peabody Earnings Surprise, Outlook Strengthens

Peabody noted a year-over-year decline in Australian pricing in the quarter, but an improvement of 8% in costs per ton and a 6% rise in shipments. U.S. revenues were down nearly 12%, but the company was able to cut U.S. costs by 3%. U.S. shipments were flat with a year ago.

Income from operations fell from $122.9 million in the third quarter of 2012 to just $24 million this year. Peabody attributed the decline to lower gross margins and higher DD&A expenses, partially offset by lower income taxes.

Looking ahead, Peabody projects U.S. demand for coal for the full year will rise by 45 million to 55 million tons above 2012 levels. That is down from last quarter’s projection for an increase of 50 million to 70 million tons. Year-to-date shipments are down 20 million tons compared with 2012, but demand has increased as natural gas prices rise and electricity-generation plants switch from gas to coal.

The company’s CEO said:

Peabody’s third quarter results were led by significant cost reductions across all regions and higher Australian volumes. … Australia continues to widen its competitive advantage in the seaborne coal markets as inflation and exchange rates moderate, and a new government fosters policies to improve the competitive position of the resource sector. Metallurgical coal fundamentals are improving and continued build out of new generation is driving record thermal coal demand. Supply rationalization is continuing as higher cost mines in the U.S. and China close, and other exporting nations face increased domestic demand and rising costs.

Peabody has raised its full-year EPS outlook from a previous range of a loss of $0.16 to a profit of $0.09 to a new range of $0.27 to $0.45. Full-year sales expectations have risen from a range of 230 million to 250 million tons to 245 million to 255 million tons. The estimate for U.S. revenues per ton remains the same, with an expected decline of 5% to 10% per ton. The outlook for DD&A levels also remained as before, at about 10% higher than 2012 levels.

Shares were up about 5.5% in premarket trading Thursday morning, at $18.87 in a 52-week range of $14.34 to $29.84. Prior to this earnings release, Thomson/Reuters had a consensus price target of around $23.00 on the company’s shares.