Can Peabody Shrink Its Way to Salvation?

Commodities & Metals

Published: June 9, 2015 10:20 am

Coal companies have suffered recently, and they need a means to survive this harsh political climate. Peabody Energy Corp. (NYSE: BTU) believes that it has found a solution for now, but some of its employees are not going to like it.

The company announced that it plans to cut 250 corporate and regional employees and close two offices. Most of these cuts are expected to take place by the end of June, and these reductions are projected to save the company up to $45 million a year.

Peabody says 50 jobs will be eliminated at its headquarters in downtown St. Louis, where the company has 425 employees. CEO Glenn Kellow says the layoffs are necessary to lower costs.

Seemingly, the catalyst for this reduction in staff is the continuing weakening in the coal industry. Overall, this industry has felt pressure for years, not only economically, but also the U.S. government has issued an EPA mandate to gradually shrink the number of coal power plants.

According to Yahoo! Finance, the company has roughly 8,600 employees, so this is really only a reduction of less than 3% of the staff.

For some background on Peabody: the company is involved in the mining and sale of thermal coal to electric utilities and metallurgical coal for industrial customers. It also offers direct and brokered trading of coal and freight-related contracts. In addition, the company operates a mine-mouth coal-fueled generating plant, manages its coal reserve and real estate holdings, and supports the development of BTU conversion and clean coal technologies.

Shares of Peabody closed Monday down 4.4% at $3.06, in a 52-week trading range of $3.03 to $17.21. In trading Tuesday morning, shares were up 4.9% at $3.21. The stock has a consensus analyst price target of $7.10.

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