This summary is based on the fourth quarter fiscal 2008 earnings call conducted by Peabody Energy Corp. (BTU) on 27 January, 2009.
Management:
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Chairman and CEO: Greg Boyce
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EVP and CFO: Mike Crews
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President and CCO: Rick Navarre
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SVP, IR and Corporate Communications: Vic Svec
Key Investors Issues
- Revenues grew 45% from $4.5 billion in 2007 to $6.6 billion.
- Net Income increased 3x to $985 million or $3.63 a share.
Fourth Quarter Highlights
- Revenues were up 61% to $1.9 billion.
- Income rose 7 times to $293 million or $1.11 a share.
Full Year Highlights:
Revenues grew 45% from $4.5 billion in 2007 to $6.6 billion on a combination of higher volumes and increased prices across the global platform.
- Australia revenues doubled prior year levels and volumes rose 14% and the US operations also turned in solid results, with a 21% revenue increase.
- EBITDA was at the top end of expectations reaching a record $1.85 billion led by the Australian operations, which contributed more than half of the total EBITDA, along with strong results from US operations.
- Trading and brokerage also turned in outstanding results, contributing $219 million of EBITDA for the year as the firm successfully seized opportunities.
Operating profit of $1.4 billion, more than doubled 2007’s levels and led to a significant improvement in pretax income.
- Net Income increased 3x to $985 million or $3.63 a share from $263 million or $1.63 a share in the prior year on revenue growth.
- The firm generated $1.4 billion in operating cash flows from continuing operations, allowing it to fund CAPEX, repay the $130 million of debt, repurchase $200 million of stock, and grow the cash balance.
- It has no significant debt maturities until 2011, which provides additional financial flexibility.
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US revenues per ton improved 15% as new contract prices layered in over the year, exceeded roll off levels in all operating regions.
- On a full-year base over half of the US cost increase versus last year was due to a combination of higher sales related taxes and the inflationary impact of commodity prices on fuel, explosives and maintenance supplies.
- Overall US margin per ton improvement was led by higher revenues and a shift toward lower cost operations, such as the new El Segundo mine in the Southwest and North Antelope Rochelle in the Powder River Basin.
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Australia realized some of the earnings potential from the recent years of investment.
- Volumes increased 14% to nearly 24 million tons, whereas the overall industry exports from Australia grew only 4%.
- Peabody''s Australian revenues per ton increased over both last quarter and last year, due to the higher met and thermal prices a new contract that began in the second quarter of 2008.
- On the cost side, BTU achieved the low $50 per ton level targeted, even with the dramatic fluctuations in commodity prices and increasing royalties.
Near Term Priorities:
- The firm will continue to target cost containment, capital discipline and increased contributions from higher margin mines.
- It will continue to evaluate accretive acquisitions, pursue operating, trading infrastructure and joint venture opportunities, such as the investment in a Mongolian joint venture company.
- It will continue to advance the clean coal and BTU conversion activities, many of which occur with global partners.
Macroeconomic Insights:
- The year was characterised by strong coal demand growth around the world including higher US exports in the first half yet by year-end demand had slumped.
- Even the growing Asian economies experienced a rare decline in generation, and met shipments slowed considerably, as steel demand dropped and credit markets collapsed.
- BTU expects the soft coal markets to be with this through much of the year until industrial activity bounces backs and the economic stimulus plans take root.
It also has higher customer stockpiles and much cheaper oil and natural gas to contend with.
- Coal prices appear to have stabilized this past month and stockpiles at China''s largest port have declined and prices there have increased consistent with recent hikes in Chinese steel output and steel prices.
- India continues to have very low stockpiles and the government has called for additional increases in 2009 coal imports.
- In the US generation is on the rise and stockpiles are coming down, giving heating degree-days that are running at currently 11% higher in the coal burning regions than last winter.
- In US steel production numbers have stabilized in the US for capacity utilization, now in a 40% to 50% range, up from the 30% in December.
Globally the firm has tracked more than 70 million tons of production cuts for 2009, which have been announced or implied, along with major reductions in capital spending.
