This summary is based on the fourth quarter fiscal 2006 earnings call conducted by Peabody Energy Corp. (BTU) on January 25, 2007.
Management:
Vice President, Public and Investor Relations: Victor Svec
Executive Vice President and Chief Financial Officer: Richard A. Navarre
President and Chief Executive Officer: Gregory H. Boyce
Key Investors Issues
- Full year earnings, including Excel operations, exceeded $6 million or $2.29 per share, a 45% improvement.
- Full year revenues climbed to $5.3 billion.
- Capital came in at $478 million, well in line with expectations.
Fiscal 2006 Highlights
Full year earnings including Excel operations exceeded $6 million or $2.29 per share, a 45% improvement.
- The company increased earnings from all business activities. The company goes ban integrating and benefiting from the Excel acquisition which raises access to the growing, high-margin global markets.
- The company was added to the S&P 500 index and recognized as one of Forbes platform 400 companies for the second year in a row.
- Full year revenues climbed to $5.3 billion. On higher volume and pricing in all regions. EBITDA recognize 24% and operating profit increased 28% and net income road 42% to just over $600 million on earnings per share of $2.23.
- Excel contributed sales of 2.1 million tons, $105 million in revenues, and $20 million in EBITDA, with offset of earnings to share of 6 cents driven by interest and debt retirement charges. Revenue increase was driven by both increased volumes and pricing in all producing regions. Last year the company estimated that U.S. costs excluding growth and sales taxes would increase approximately 5%. The overall U.S. cost increase on this basis was in the 7% range, but would have been less than 5% added to the nonrecurring equipment challenges and record high fool prices. With the Eastern United States cost per ton increases were driven by production taxes and ongoing industry challenges relating to mix changes, fuel and contractor performance.
Capital came in at $478 million, well in line with expectations.
- The company is exercising capital discipline as it targets 2007 of $450 million to $425 million, which includes $100 million of developmental capital to complete the build-out of Excel operations in Australia. This level is comparable to last year, but with a much bigger company. In addition to the Excel capital in of the projects include a new drag line an over line conveyor system and largest operation. These systems will increase the mines’ productivity by 120% while lowering annual fuel needs as much as 16%.
- The balance sheet reflects fourth quarter acquisition and financing of the Excel purchase. Financing includes a mix of prepayable term loans, medium to long-dated bonds and low coupon high premium convertible bonds.
The company expects increased pricing in the United States based on contracts signed in recent years.
- This is occurring mostly in the west where the realized price per ton will grow as much as 20% led by a 30% rise in premium PRB coal pricing over year. This impact will more than offset $175 million of lower coal pricing, labor expenses and post retirement benefit charges.
- As the year progresses Peabody will benefit from the Excel transaction with EBITDA contributions of $160 million to $180 million. Much of this will come in the second half as the company completes new mine development and expansion projects.
- Overall Peabody is targeting 2007 EBITDA with EPS of up to 23%. EBITDA is targeted in a range of $1.2 billion to $1.45 billion with earnings per share estimated at $2.10 to $2.75. Results will be sensitive to transportation, the ramp up of productions in Australia and the timing of production and shipments of high margin business, particularly met cal. Quarterly results in 2007 are likely to be shaped by planned customer outages in the spring and the ramp up of the benefits from Excel in the second half. The realization of potential tax benefits will have variability in numbers.
- China’s thermal coal prices have shown sharp recent increases, and China may cease to be a net exporter of coal within the next several years. Overall, coal demand continues to grow throughout Asia. As a result of these two factors Australian thermal coal pricing continues to rise with a new castle index prices up more than 20% in just the last three months. Global thermal markets would be even tighter, but for the mild start to winter in Europe. Third quarter electricity from coal rose 25% in the U.K. while power from natural gas fell 11%. Global steel demand grew another 9% in 2006. This resulted in hard quality coal prices nearing triple digits while the PCI coal appears stable from last year. Long-term coal growth will come on several fronts generating plants after higher capacity, new plants that are under development, global steel demand growth and expanding markets for coal to liquid and coal to gas.
Key questions from the fourth quarter earnings call conducted by Peabody Energy Corp. on January 25, 2008.
What would it take for you to consider significant cut backs in Powder River Basin production, not just the ratcheting back of growth, but sending a strong signal to the market and how do you approach that?
All of our plans Powder River Basin production for 2007 is already under sales commitments for this year. When we took the step to reduce our growth last year that was the unsold position that we had. Our plan right now is to meet all of the sales commitments that we have and not to expand beyond that in 2007.
Are the resource management or asset sales numbers included in the EBITDA guidance ranges for the year?
As we look forward that is a continuing element of our business, has been for a number of years and we had a strong year in resource management in 2006 driven in large part by higher demand levels and higher reserve valuations. As we look towards 2007 it is difficult to predict this area because it is lumpy at times but if I was to give an estimate for the guidance for resource management, I would use about $15 million a quarter, so 60 to $70 million in total for the year.
