Peabody Sets the Stage for 2011 - Analyst Blog

St. Louis-based Peabody Energy Corporation (BTU) reported fourth-quarter 2010 earnings of 85 cents per share, beating the Zacks Consensus Estimate of 70 cents. The company's profits almost doubled compared to the last year's earnings of 43 cents, driven by higher global prices and demand for coal, which offset the production disruptions emanating from the devastating rains and floods in Australia.

Peabody's adjusted earnings for the full year 2010 were $3.05 per share, recording a 4.8% positive earnings surprise compared to the Zacks estimate of $2.91. The company's earnings compared to full year 2009 also grew 59% from $1.92.  

Revenue

Peabody's quarterly revenue, at $1.82 billion, increased 17% year-over-year on the back of a 58% rise in Australian revenues driven by rising prices for both metallurgical and seaborne thermal coal. During the fourth quarter, Peabody's U.S. operations also performed fairly well, with segment revenue increasing 9% from last year. The company's revenue for the quarter comfortably outdid the Zacks Consensus Estimate of $1.794 billion.

For the full-year, Peabody recorded revenue of $6.86 million showing a growth of 14% year over year and beating the Zacks Consensus estimate of $6.862 billion. For the full year also, revenue from the company's U.S. operations grew slightly but Australian revenues contributed to the larger portion of revenue.

Volumes

Peabody's total sales volumes in the quarter were 63.9 million tons, slightly ahead of prior year levels. Sales volumes in 2010 reached a record 245.9 million tons beating last year's record sales of 243.6 million tons.

By region, quarterly sales volumes were 42.1 million tons (up 9% year over year) from Western U.S. mining operations, 8.1 million tons (up 3.8%) from Midwestern U.S. mining operations and 7.0 million tons (up 9.4%) from Australian operations.

Balance Sheet

Peabody's capital expenditure (excluding acquisitions) in the fourth quarter was $289.2 million bringing the full year spending to $633.0 million. At year-end 2010, the company had $1.3 billion in cash and $2.7 billion in long-term debt.

Guidance

Looking into 2011, Peabody expects first quarter 2011 EBITDA to come in the range of $325 - $425 million and adjusted earnings per share of $0.45 to $0.65. However, the company said it expects the first quarter results to be impacted by the sales and costs related to the Australian rains, as well as scheduled longwall moves in the United States and Australia.

For full-year 2011, the company is targeting total sales of 245 – 265 million tons, including 28 to 30 million tons from Australia, 195 to 205 million tons from the United States and the remainder from Trading and Brokerage activities. 

We note that Peabody continues to advance multiple organic growth projects in Australia and the United States.  The company expects to spend an estimated $900 - $950 million towards capital expenditures in 2011. Of the total spending, the company has slated roughly $500 - $550 million for new mines, expansion and extension projects.

On a regional basis, the company said it expects spend about 70% of this capex for growth and expansion projects in Australia, with the remainder for projects in the United States.

In Australia, Peabody continues to target 35 - 40 million tons per year of sales by 2014 to 2015, including 12 - 15 million tons of metallurgical coal capacity and 15 - 17 million tons of thermal export capacity. 

Our Take

We believe Peabody has stepped into 2011 with a robust pipeline of growth projects as well as an improving global economy. We note that the demand for electricity and steel continues to rise globally, thus, driving the demand for coal.

Going forward, Peabody's growth is expected to be driven by continued strength in the U.S. and Australia, led by increased thermal and metallurgical coal demand in China, India and other emerging nations, particularly Asian economics.

However, this growth may be slightly impacted by the effects of devastating rains in Australia in the near-term. Nevertheless, the company's pipeline of growth projects in Australia offers a positive outlook for the longer term.

Peabody's closest peer Arch Coal Inc. (ACI) is expected release its December quarter results on January 28, 2010. St. Louis, Missouri-based Arch Coal had recently snipped its 2010 earnings guidance due to lower shipment levels and geological challenges impacting its Mountain Laurel operation. The company presently expects its operating earnings per share for 2010 in the range of $1.11–$1.15, which is well in sync with the Zacks Consensus estimate of $1.13.

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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