Flooding Curbs Peabody Outlook - Analyst Blog

Coal miner Peabody Energy Corporation (BTU) cut its 2010 earnings forecast due to heavy rains and flooding in Australia. Notably, Australia accounts for nearly one-third of the company's net revenue. Peabody Energy is scheduled to report its full-year 2010 results on January 25, 2011.

Peabody said it now expects 2010 EBITDA near the midpoint of its July 2010 full-year target of $1.7 billion to $1.9 billion versus its revised October 2010 EBITDA guidance of $1.85 billion to $1.9 billion. In 2009, Peabody's Australia operations had accounted for nearly 28% of sales and 34% of EBITDA.

Australia has experienced the worst rains and flooding in about 50 years in December 2010. The flooding has paralyzed the world's largest coal exporting country, affecting coal transportation across the Southern Hemisphere, including Australia, Indonesia, South Africa and South America.

Given Australia is Peabody's core producing region, this natural disaster is expected to saturate the company's 2011 results and also wash out its plans to substantially increase Australian production by 2014.

Historically, Peabody has remained well positioned in Australia with expansions in both thermal and metallurgical coal mines. The company's Australian leverage has given it an edge over competitors due to its proximity to the major Pacific markets. 

In the most recent quarter, Peabody said that it targets its Australian production platform to reach 35 to 40 million tons per year by 2015.

The Zacks Consensus earnings estimates for fourth-quarter 2010, fiscal years 2010 and 2011 are a respective 91 cents, $3.12 and $4.66 per share.

Peabody's future growth is mainly linked to increased demand for energy in Asian economies such as China and India, and the recovery of the steel markets in developed economies such as Japan, South Korea and Taiwan. The company primarily competes with Arch Coal Inc. (ACI) and CONSOL Energy Inc. (CNX).

Based in St. Louis, Missouri, Peabody Energy is involved in the exploration, mining and production of coal for its global consumers. Peabody serves customers across six continents and has trading and business offices in Indonesia, Singapore, China, Australia, the United Kingdom, Venezuela and the United States. With 2009 sales of 244 million tons and $6 billion in revenues, Peabody fuels 10% of U.S. power and 2% of worldwide electricity.

Peabody Energy currently retains a Zacks #3 Rank (short-term Hold rating). We maintain our long-term Neutral rating on the stock.

 
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